G.R. No.

L-16968

July 31, 1962

PHILIPPINE NATIONAL BANK, plaintiff-appellee,

vs.
CONCEPCION MINING COMPANY, INC., ET
appellants.

AL.,

defendants-

Ramon B. de los Reyes for plaintiff-appellee.

Demetrio Miraflor for defendants-appellants.
LABRADOR, J.:
Appeal from a judgment or decision of the Court of First Instance of Manila,
Hon. Gustavo Victoriano, presiding, sentencing defendants Concepcion
Mining Company and Jose Sarte to pay jointly and severally to the plaintiff
the amount of P7,197.26 with interest up to September 29, 1959, plus a
daily interest of P1.3698 thereafter up to the time the amount is fully paid,
plus 10% of the amount as attorney's fees, and costs of this suit.

Instance of Manila. On the basis of this allegation it is prayed, as a special

defense, that the estate of said deceased Vicente L. Legarda be included
as party-defendant. The court in its decision ruled that the inclusion of said
defendant is unnecessary and immaterial, in accordance with the
provisions of Article 1216 of the Deny Civil Code and section 17 (g) of the
Negotiable Instruments Law.
A motion to reconsider this decision was denied and thereupon defendants
presented a petition for relief, asking that the effects of the judgment be
suspended for the reason that the deceased Vicente L. Legarda should
have been included as a party-defendant and his liability should be
determined in pursuance of the provisions of the promissory note. This
motion for relief was also denied, hence defendant appealed to this Court.
Section 17 (g) of the Negotiable Instruments Law provides as follows:
SEC. 17. Construction where instrument is ambiguous. Where the
language of the instrument is ambiguous or there are omissions therein,
the following rules of construction apply:

The present action was instituted by the plaintiff to recover from the
defendants the face of a promissory note the pertinent part of which reads
as follows:

xxx

Manila, March 12, 1954

(g) Where an instrument containing the word "I promise to pay" is signed
by two or more persons, they are deemed to be jointly and severally liable
thereon.

NINETY DAYS after date, for value received, I promise to pay to the order of
the Philippine National Bank . . . .
In case it is necessary to collect this note by or through an attorney-at-law,
the makers and indorsers shall pay ten percent (10%) of the amount due
on the note as attorney's fees, which in no case shall be less than P100.00
exclusive of all costs and fees allowed by law as stipulated in the contract
of real estate mortgage. Demand and Dishonor Waived. Holder may accept
partial payment reserving his right of recourse again each and all
indorsers.
(Purpose mining industry)
CONCEPCION MINING COMPANY, INC.,
By:
(Sgd.) VICENTE LEGARDA
President
(Sgd.) VICENTE LEGARDA
(Sgd.) JOSE S SARTE
"Please issue check to
Mr. Jose S. Sarte"
Upon the filing of the complaint the defendants presented their answer in
which they allege that the co-maker the promissory note Don Vicente L.
Legarda died on February 24, 1946 and his estate is in the process of
judicial determination in Special Proceedings No. 29060 of the Court of First

xxx

xxx

And Article 1216 of the Civil Code of the Philippines also provides as
follows:
ART. 1216. The creditor may proceed against any one of the solidary
debtors or some of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be
directed against the others so long as the debt has not been fully collected.
In view of the above quoted provisions, and as the promissory note was
executed jointly and severally by the same parties, namely, Concepcion
Mining Company, Inc. and Vicente L. Legarda and Jose S. Sarte, the payee
of the promissory note had the right to hold any one or any two of the
signers of the promissory note responsible for the payment of the amount
of the note. This judgment of the lower court should be affirmed.
Our attention has been attracted to the discrepancies in the printed record
on appeal. We note, first, that the names of the defendants, who are
evidently the Concepcion Mining Co., Inc. and Jose S. Sarte, do not appear
in the printed record on appeal. The title of the complaint set forth in the
record on appeal does not contain the name of Jose Sarte, when it should,
as two defendants are named in the complaint and the only defense of the
defendants is the non-inclusion of the deceased Vicente L. Legarda as a
defendant in the action. We also note that the copy of the promissory note
which is set forth in the record on appeal does not contain the name of the
third maker Jose S. Sarte. Fortunately, the brief of appellee on page 4 sets

forth said name of Jose S. Sarte as one of the co-maker of the promissory
note. Evidently, there is an attempt to mislead the court into believing that
Jose S. Sarte is no one of the co-makers. The attorney for the defendants
Atty. Jose S. Sarte himself and he should be held primarily responsible for
the correctness of the record on appeal. We, therefore, order the said Atty.
Jose S. Sarte to explain why in his record on appeal his own name as one of
the defendants does not appear and neither does his name appear as one
of the co-signers of the promissory note in question. So ordered.
G.R. No. 93073

December 21, 1992

REPUBLIC PLANTERS BANK, petitioner,

vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.

Under the promissory note (Exhibit "F") defendant corporation Pinch

(formerly Worldwide) is ordered to pay the plaintiff bank the sum of
P140,000.00 with interest at 16% per annum from November 27, 1980 until
fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff
the sum of P231,120.81 with interest at 12% per annum from July 1, 1981,
until fully paid and the sum of P331,870.97 with interest from March 28,
1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the
plaintiff the sum of P100,000.00 as and for reasonable attorney's fee and
the further sum equivalent to 3% per annum of the respective principal
sums from the dates above stated as penalty charge until fully paid, plus
one percent (1%) of the principal sums as service charge.

CAMPOS, JR., J.:

With costs against the defendants.
This is an appeal by way of a Petition for Review on Certiorari from the
decision * of the Court of Appeals in CA G.R. CV No. 07302, entitled
"Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing
Corporation, et al., Defendants, and Fermin Canlas, Defendant-Appellant",
which affirmed the decision ** in Civil Case No. 82-5448 except that it
completely absolved Fermin Canlas from liability under the promissory
notes and reduced the award for damages and attorney's fees. The RTC
decision, rendered on June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff Republic Planters Bank, ordering defendant Pinch
Manufacturing Corporation (formerly Worldwide Garment Manufacturing,
Inc.) and defendants Shozo Yamaguchi and Fermin Canlas to pay, jointly
and severally, the plaintiff bank the following sums with interest thereon at
16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with
interest from January 29, 1981 until fully paid; under promissory note
(Exhibit "B"), the sum of P40,000.00 with interest from November 27, 1980;
under the promissory note (Exhibit "C"), the sum of P166,466.00 which
interest from January 29, 1981; under the promissory note (Exhibit "E"), the
sum of P86,130.31 with interest from January 29, 1981; under the
promissory note (Exhibit "G"), the sum of P12,703.70 with interest from
November 27, 1980; under the promissory note (Exhibit "H"), the sum of
P281,875.91 with interest from January 29, 1981; and under the
promissory note (Exhibit "I"), the sum of P200,000.00 with interest from
January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing
Corporation (formerly named Worldwide Garment Manufacturing, Inc.), and
Shozo Yamaguchi are ordered to pay jointly and severally, the plaintiff bank
the sum of P367,000.00 with interest of 16% per annum from January 29,
1980 until fully paid

SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the
then Intermediate Court (now the Court Appeals). His contention was that
inasmuch as he signed the promissory notes in his capacity as officer of
the defunct Worldwide Garment Manufacturing, Inc, he should not be held
personally liable for such authorized corporate acts that he performed. It is
now the contention of the petitioner Republic Planters Bank that having
unconditionally signed the nine (9) promissory notes with Shozo
Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity
liable with Shozo Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi
and private respondent Fermin Canlas were President/Chief Operating
Officer and Treasurer respectively, of Worldwide Garment Manufacturing,
Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant
Shozo Yamaguchi and private respondent Fermin Canlas were authorized to
apply for credit facilities with the petitioner Republic Planters Bank in the
forms of export advances and letters of credit/trust receipts
accommodations. Petitioner bank issued nine promissory notes, marked as
Exhibits A to I inclusive, each of which were uniformly worded in the
following manner:
___________, after date, for value received, I/we, jointly and severaIly
promise to pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office
in Manila, Philippines, the sum of ___________ PESOS(....) Philippine
Currency...
On the right bottom margin of the promissory notes appeared the
signatures of Shozo Yamaguchi and Fermin Canlas above their printed

names with the phrase "and (in) his personal capacity" typewritten below.
At the bottom of the promissory notes appeared: "Please credit proceeds of
this note to:

any holder 4 according to the tenor thereof. 5 Based on the above

provisions of law, there is no denying that private respondent Fermin
Canlas is one of the co-makers of the promissory notes. As such, he cannot
escape liability arising therefrom.

________ Savings Account ______XX Current Account

No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line
which ran horizontally across the pages.
In the promissory notes marked as Exhibits C, D and F, the name
Worldwide Garment Manufacturing, Inc. was apparently rubber stamped
above the signatures of defendant and private respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to
change its corporate name to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of
sums of money covered among others, by the nine promissory notes with
interest thereon, plus attorney's fees and penalty charges. The
complainant was originally brought against Worldwide Garment
Manufacturing, Inc. inter alia, but it was later amended to drop Worldwide
Manufacturing, Inc. as defendant and substitute Pinch Manufacturing
Corporation it its place. Defendants Pinch Manufacturing Corporation and
Shozo Yamaguchi did not file an Amended Answer and failed to appear at
the scheduled pre-trial conference despite due notice. Only private
respondent Fermin Canlas filed an Amended Answer wherein he, denied
having issued the promissory notes in question since according to him, he
was not an officer of Pinch Manufacturing Corporation, but instead of
Worldwide Garment Manufacturing, Inc., and that when he issued said
promissory notes in behalf of Worldwide Garment Manufacturing, Inc., the
same were in blank, the typewritten entries not appearing therein prior to
the time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this
appeal is whether private respondent Fermin Canlas is solidarily liable with
the other defendants, namely Pinch Manufacturing Corporation and Shozo
Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each
of the promissory notes bearing his signature for the following reasons:
The promissory motes are negotiable instruments and must be governed
by the Negotiable Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on
the face of promissory notes are makers and are liable as such. 3 By
signing the notes, the maker promises to pay to the order of the payee or

Where an instrument containing the words "I promise to pay" is signed by

two or more persons, they are deemed to be jointly and severally liable
thereon. 6 An instrument which begins" with "I" ,We" , or "Either of us"
promise to, pay, when signed by two or more persons, makes them
solidarily liable. 7 The fact that the singular pronoun is used indicates that
the promise is individual as to each other; meaning that each of the cosigners is deemed to have made an independent singular promise to pay
the notes in full.
In the case at bar, the solidary liability of private respondent Fermin Canlas
is made clearer and certain, without reason for ambiguity, by the presence
of the phrase "joint and several" as describing the unconditional promise to
pay to the order of Republic Planters Bank. A joint and several note is one
in which the makers bind themselves both jointly and individually to the
payee so that all may be sued together for its enforcement, or the creditor
may select one or more as the object of the suit. 8 A joint and several
obligation in common law corresponds to a civil law solidary obligation;
that is, one of several debtors bound in such wise that each is liable for the
entire amount, and not merely for his proportionate share. 9 By making a
joint and several promise to pay to the order of Republic Planters Bank,
private respondent Fermin Canlas assumed the solidary liability of a debtor
and the payee may choose to enforce the notes against him alone or
jointly with Yamaguchi and Pinch Manufacturing Corporation as solidary
debtors.
As to whether the interpolation of the phrase "and (in) his personal
capacity" below the signatures of the makers in the notes will affect the
liability of the makers, We do not find it necessary to resolve and decide,
because it is immaterial and will not affect to the liability of private
respondent Fermin Canlas as a joint and several debtor of the notes. With
or without the presence of said phrase, private respondent Fermin Canlas
is primarily liable as a co-maker of each of the notes and his liability is that
of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an
amendment in a corporation's Articles of Incorporation effecting a change
of corporate name, in this case from Worldwide Garment manufacturing Inc
to Pinch Manufacturing Corporation extinguished the personality of the
original corporation.
The corporation, upon such change in its name, is in no sense a new
corporation, nor the successor of the original corporation. It is the same
corporation with a different name, and its character is in no respect
changed. 10

A change in the corporate name does not make a new corporation, and
whether effected by special act or under a general law, has no affect on
the identity of the corporation, or on its property, rights, or liabilities. 11
The corporation continues, as before, responsible in its new name for all
debts or other liabilities which it had previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear
no personal liability for acts done or contracts entered into by officers of
the corporation, if duly authorized. Inasmuch as such officers acted in their
capacity as agent of the old corporation and the change of name meant
only the continuation of the old juridical entity, the corporation bearing the
same name is still bound by the acts of its agents if authorized by the
Board. Under the Negotiable Instruments Law, the liability of a person
signing as an agent is specifically provided for as follows:
Sec. 20.
Liability of a person signing as agent and so forth. Where
the instrument contains or a person adds to his signature words indicating
that he signs for or on behalf of a principal , or in a representative capacity,
he is not liable on the instrument if he was duly authorized; but the mere
addition of words describing him as an agent, or as filling a representative
character, without disclosing his principal, does not exempt him from
personal liability.
Where the agent signs his name but nowhere in the instrument has he
disclosed the fact that he is acting in a representative capacity or the
name of the third party for whom he might have acted as agent, the agent
is personally liable to take holder of the instrument and cannot be
permitted to prove that he was merely acting as agent of another and parol
or extrinsic evidence is not admissible to avoid the agent's personal
liability. 13
On the private respondent's contention that the promissory notes were
delivered to him in blank for his signature, we rule otherwise. A careful
examination of the notes in question shows that they are the stereotype
printed form of promissory notes generally used by commercial banking
institutions to be signed by their clients in obtaining loans. Such printed
notes are incomplete because there are blank spaces to be filled up on
material particulars such as payee's name, amount of the loan, rate of
interest, date of issue and the maturity date. The terms and conditions of
the loan are printed on the note for the borrower-debtor 's perusal. An
incomplete instrument which has been delivered to the borrower for his
signature is governed by Section 14 of the Negotiable Instruments Law
which provides, in so far as relevant to this case, thus:
Sec. 14.
Blanks: when may be filled. Where the instrument is
wanting in any material particular, the person in possesion thereof has a
prima facie authority to complete it by filling up the blanks therein. ... In
order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its

completion, it must be filled up strictly in accordance with the authority

given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving
testimony of private respondent Fermin Canlas, as determined by the trial
court, so that the trial court ''doubts the defendant (Canlas) signed in blank
the promissory notes". We chose to believe the bank's testimony that the
notes were filled up before they were given to private respondent Fermin
Canlas and defendant Shozo Yamaguchi for their signatures as joint and
several promissors. For signing the notes above their typewritten names,
they bound themselves as unconditional makers. We take judicial notice of
the customary procedure of commercial banks of requiring their clientele to
sign promissory notes prepared by the banks in printed form with blank
spaces already filled up as per agreed terms of the loan, leaving the
borrowers-debtors to do nothing but read the terms and conditions therein
printed and to sign as makers or co-makers. When the notes were given to
private respondent Fermin Canlas for his signature, the notes were
complete in the sense that the spaces for the material particular had been
filled up by the bank as per agreement. The notes were not incomplete
instruments; neither were they given to private respondent Fermin Canlas
in blank as he claims. Thus, Section 14 of the NegotiabIe Instruments Law
is not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court
in reducing the interest rate on the promissory notes from 16% to 12% per
annum does not squarely apply to the instant petition. In the abovecited
case, the rate of 12% was applied to forebearances of money, goods or
credit and court judgemets thereon, only in the absence of any stipulation
between the parties.
In the case at bar however , it was found by the trial court that the rate of
interest is 9% per annum, which interest rate the plaintiff may at any time
without notice, raise within the limits allowed law. And so, as of February
16, 1984 , the plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by
Presidential Decree No. 116, are applicable only to interests by way of
compensation for the use or forebearance of money. Article 2209 of the
Civil Code, on the other hand, governs interests by way of damages. 15
This fine distinction was not taken into consideration by the appellate
court, which instead made a general statement that the interest rate be at
12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not
subject to any ceiling prescribed by the Usury Law, the appellate court
erred in limiting the interest rates at 12% per annum. Central Bank Circular
No. 905, Series of 1982 removed the Usury Law ceiling on interest rates.
16
In the 1ight of the foregoing analysis and under the plain language of the
statute and jurisprudence on the matter, the decision of the respondent:

Court of Appeals absolving private respondent Fermin Canlas is REVERSED

and SET ASIDE. Judgement is hereby rendered declaring private
respondent Fermin Canlas jointly and severally liable on all the nine
promissory notes with the following sums and at 16% interest per annum
from the dates indicated, to wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00
with interest from January 29, 1981 until fully paid; under promissory note
marked as Exhibit B, the sum of P40,000.00 with interest from November
27, 1980: under the promissory note denominated as Exhibit C, the
amount of P166,466.00 with interest from January 29, 1981; under the
promissory note denominated as Exhibit D, the amount of P367,000.00
with interest from January 29, 1981 until fully paid; under the promissory
note marked as Exhibit E, the amount of P86,130.31 with interest from
January 29, 1981; under the promissory note marked as Exhibit F, the sum
of P140,000.00 with interest from November 27, 1980 until fully paid;
under the promissory note marked as Exhibit G, the amount of P12,703.70
with interest from November 27, 1980; the promissory note marked as
Exhibit H, the sum of P281,875.91 with interest from January 29, 1981; and
the promissory note marked as Exhibit I, the sum of P200,000.00 with
interest on January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly
Worldwide Garment Manufacturing, Inc.) and Shozo Yamaguchi, for not
having appealed from the decision of the trial court, shall be adjudged in
accordance with the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the
private respondent Fermin Canlas is hereby held jointly and solidarity liable
with defendants for the amounts found, by the Court a quo. With costs
against private respondent.
SO ORDERED.

[G.R. No. 136729. September 23 ,2003]

ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs.
PHILIPPINE
EXPORT
AND
FOREIGN
LOAN
GUARANTEE
CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in this petition for review on certiorari under Rule 45 of the Rules
of Court is the decision of the Court of Appeals in CA-G.R. CV No. 41274,[1]
affirming the decision of the Regional Trial Court (Branch 147) of Makati,
then Metro Manila, whereby petitioners Peter Roxas and Astro Electronics
Corp. (Astro for brevity) were ordered to pay respondent Philippine Export
and Foreign Loan Guarantee Corporation (Philguarantee), jointly and
severally, the amount of P3,621,187.52 with interests and costs.
The antecedent facts are undisputed.
Astro was granted several loans by the Philippine Trust Company (Philtrust)
amounting to P3,000,000.00 with interest and secured by three promissory
notes: PN NO. PFX-254 dated December 14, 1981 for P600,000.00, PN No.
PFX-258 also dated December 14, 1981 for P400,000.00 and PN No. 15477
dated August 27, 1981 for P2,000,000.00. In each of these promissory
notes, it appears that petitioner Roxas signed twice, as President of Astro
and in his personal capacity.[2] Roxas also signed a Continuing Surety ship
Agreement in favor of Philtrust Bank, as President of Astro and as surety.[3]
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of
Philtrust the payment of 70% of Astros loan,[4] subject to the condition
that upon payment by Philguanrantee of said amount, it shall be
proportionally subrogated to the rights of Philtrust against Astro.[5]
As a result of Astros failure to pay its loan obligations, despite demands,
Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently,
Philguarantee filed against Astro and Roxas a complaint for sum of money
with the RTC of Makati.
In his Answer, Roxas disclaims any liability on the instruments, alleging,
inter alia, that he merely signed the same in blank and the phrases in his
personal capacity and in his official capacity were fraudulently inserted
without his knowledge.[6]
After trial, the RTC rendered its decision in favor of Philguarantee with the
following dispositive portion:
WHEREFORE, in view of all the foregoing, the Court hereby renders
judgment in favor or (sic) the plaintiff and against the defendants Astro

Electronics Corporation and Peter T. Roxas, ordering the then (sic) to pay,
jointly and severally, the plaintiff the sum of P3,621.187.52 representing
the total obligation of defendants in favor of plaintiff Philguarantee as of
December 31, 1984 with interest at the stipulated rate of 16% per annum
and stipulated penalty charges of 16% per annum computed from January
1, 1985 until the amount is fully paid. With costs.

As to the third promissory note, Exhibit C-4 and 5-A, the copy submitted is
not clear so that this Court could not discern the same observations on the
notes, Exhibits A-4 and 3-A and B-4 and 4-A.

SO ORDERED.[7]

The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We
jointly, severally and solidarily, promise to pay to PHILTRUST BANK or
order...[12] An instrument which begins with I, We, or Either of us promise
to pay, when signed by two or more persons, makes them solidarily liable.
[13] Also, the phrase joint and several binds the makers jointly and
individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the
suit.[14] Having signed under such terms, Roxas assumed the solidary
liability of a debtor and Philtrust Bank may choose to enforce the notes
against him alone or jointly with Astro.

The trial court observed that if Roxas really intended to sign the
instruments merely in his capacity as President of Astro, then he should
have signed only once in the promissory note.[8]
On appeal, the Court of Appeals affirmed the RTC decision agreeing with
the trial court that Roxas failed to explain satisfactorily why he had to sign
twice in the contract and therefore the presumption that private
transactions have been fair and regular must be sustained.[9]
In the present petition, the principal issue to be resolved is whether or not
Roxas should be jointly and severally liable (solidary) with Astro for the
sum awarded by the RTC.
The answer is in the affirmative.
Astros loan with Philtrust Bank is secured by three promissory notes. These
promissory notes are valid and binding against Astro and Roxas. As it
appears on the notes, Roxas signed twice: first, as president of Astro and
second, in his personal capacity. In signing his name aside from being the
President of Asro, Roxas became a co-maker of the promissory notes and
cannot escape any liability arising from it. Under the Negotiable
Instruments Law, persons who write their names on the face of promissory
notes are makers,[10] promising that they will pay to the order of the
payee or any holder according to its tenor.[11] Thus, even without the
phrase personal capacity, Roxas will still be primarily liable as a joint and
several debtor under the notes considering that his intention to be liable as
such is manifested by the fact that he affixed his signature on each of the
promissory notes twice which necessarily would imply that he is
undertaking the obligation in two different capacities, official and personal.
Unnoticed by both the trial court and the Court of Appeals, a closer
examination of the signatures affixed by Roxas on the promissory notes,
Exhibits A-4 and 3-A and B-4 and 4-A readily reveals that portions of his
signatures covered portions of the typewritten words personal capacity
indicating with certainty that the typewritten words were already existing
at the time Roxas affixed his signatures thus demolishing his claim that the
typewritten words were just inserted after he signed the promissory notes.
If what he claims is true, then portions of the typewritten words would have
covered portions of his signatures, and not vice versa.

Nevertheless, the
promissory notes.

following

discussions

equally

apply

to

all

three

Roxas claim that the phrases in his personal capacity and in his official
capacity were inserted on the notes without his knowledge was correctly
disregarded by the RTC and the Court of Appeals. It is not disputed that
Roxas does not deny that he signed the notes twice. As aptly found by both
the trial and appellate court, Roxas did not offer any explanation why he
did so. It devolves upon him to overcome the presumptions that private
transactions are presumed to be fair and regular[15] and that a person
takes ordinary care of his concerns.[16] Aside from his self-serving
allegations, Roxas failed to prove the truth of such allegations. Thus, said
presumptions prevail over his claims. Bare allegations, when
unsubstantiated by evidence, documentary or otherwise, are not
equivalent to proof under our Rules of Court.[17]
Roxas is the President of Astro and reasonably, a businessman who is
presumed to take ordinary care of his concerns. Absent any countervailing
evidence, it cannot be gainsaid that he will not sign document without first
informing himself of its contents and consequences. Clearly, he knew the
nature of the transactions and documents involved as he not only executed
these notes on two different dates but he also executed, and again, signed
twice, a continuing Surety ship Agreement notarized on July 31, 1981,
wherein he guaranteed, jointly and severally with Astro the repayment of
P3,000,000.00 due to Philtrust. Such continuing suretyship agreement
even re-enforced his solidary liability Philtrust because as a surety, he
bound himself jointly and severally with Astros obligation.[18] Roxas
cannot now avoid liability by hiding under the convenient excuse that he
merely signed the notes in blank and the phrases in personal capacity and
in his official capacity were fraudulently inserted without his knowledge.
Lastly, Philguarantee has all the right to proceed against petitioner, it is
subrogated to the rights of Philtrust to demand for and collect payment
from both Roxas and Astro since it already paid the value of 70% of roxas
and Astro Electronics Corp.s loan obligation. In compliance with its contract
of Guarantee in favor of Philtrust.

Subrogation is the transfer of all the rights of the creditor to a third person,
who substitutes him in all his rights.[19] It may either be legal or
conventional. Legal subrogation is that which takes place without
agreement but by operation of law because of certain acts.[20] Instances
of legal subrogation are those provided in Article 1302 of the Civil Code.
Conventional subrogation, on the other hand, is that which takes place by
agreement of the parties.[21]
Roxas acquiescence is not necessary for subrogation to take place because
the instant case is one of the legal subrogation that occurs by operation of
law, and without need of the debtors knowledge.[22] Further,
Philguarantee, as guarantor, became the transferee of all the rights of
Philtrust as against Roxas and Astro because the guarantor who pays is
subrogated by virtue thereof to all the rights which the creditor had against
the debtor.[23]
WHEREFORE, finding no error with the decision of the Court of Appeals
dated December 10, 1998, the same is hereby AFFIRMED in toto.
SO ORDERED.
[G. R. No. 116320. November 29, 1999]
ADALIA FRANCISCO, petitioner, vs. COURT OF APPEALS , HERBY
COMMERCIAL & CONSTRUCTION CORPORATION AND JAIME C. ONG,
respondents.
DECISION
GONZAGA_REYES, J.:
Assailed in this petition for review on certiorari is the decision[1] of the
Court of Appeals affirming the decision[2] rendered by Branch 168 of the
Regional Trial Court of Pasig in Civil Case No. 35231 in favor of private
respondents.
The controversy before this Court finds its origins in a Land Development
and Construction Contract which was entered into on June 23, 1977 by A.
Francisco Realty & Development Corporation (AFRDC), of which petitioner
Adalia Francisco (Francisco) is the president, and private respondent Herby
Commercial & Construction Corporation (HCCC), represented by its
President and General Manager private respondent Jaime C. Ong (Ong),
pursuant to a housing project of AFRDC at San Jose del Monte, Bulacan,
financed by the Government Service Insurance System (GSIS). Under the
contract, HCCC agreed to undertake the construction of 35 housing units
and the development of 35 hectares of land. The payment of HCCC for its
services was on a turn-key basis, that is, HCCC was to be paid on the basis
of the completed houses and developed lands delivered to and accepted
by AFRDC and the GSIS. To facilitate payment, AFRDC executed a Deed of

Assignment in favor of HCCC to enable the latter to collect payments

directly from the GSIS. Furthermore, the GSIS and AFRDC put up an
Executive Committee Account with the Insular Bank of Asia & America
(IBAA) in the amount of P4,000,000.00 from which checks would be issued
and co-signed by petitioner Francisco and the GSIS Vice-President Armando
Diaz (Diaz).
On February 10, 1978, HCCC filed a complaint[3] with the Regional Trial
Court of Quezon City against Francisco, AFRDC and the GSIS for the
collection of the unpaid balance under the Land Development and
Construction Contract in the amount of P515,493.89 for completed and
delivered housing units and land development. However, the parties
eventually arrived at an amicable settlement of their differences, which
was embodied in a Memorandum Agreement executed by HCCC and
AFRDC on July 21, 1978. Under the agreement, the parties stipulated that
HCCC had turned over 83 housing units which have been accepted and
paid for by the GSIS. The GSIS acknowledged that it still owed HCCC
P520,177.50 representing incomplete construction of housing units,
incomplete land development and 5% retention, which amount will be
discharged when the defects and deficiencies are finally completed by
HCCC. It was also provided that HCCC was indebted to AFRDC in the
amount of P180,234.91 which the former agreed would be paid out of the
proceeds from the 40 housing units still to be turned over by HCCC or from
any amount due to HCCC from the GSIS. Consequently, the trial court
dismissed the case upon the filing by the parties of a joint motion to
dismiss.

authorizing Francisco to collect HCCCs receivables from the GSIS. Assistant

City Fiscal Ramon M. Gerona gave credence to Franciscos claims and
accordingly, dismissed the complaints, which dismissal was affirmed by the
Minister of Justice in a resolution issued on June 5, 1981.
The present case was brought by private respondents on November 19,
1979 against Francisco and IBAA for the recovery of P370,475.00,
representing the total value of the seven checks, and for damages,
attorneys fees, expenses of litigation and costs. After trial on the merits,
the trial court rendered its decision in favor of private respondents, the
dispositive portion of which provides WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiffs and against the defendants INSULAR BANK OF ASIA &
AMERICA and ATTY. ADALIA FRANCISCO, to jointly and severally pay the
plaintiffs the amount of P370.475.00 plus interest thereon at the rate of
12% per annum from the date of the filing of the complaint until the full
amount is paid; moral damages to plaintiff Jaime Ong in the sum of
P50,000.00; exemplary damages of P50,000.00; litigation expenses of
P5,000.00; and attorneys fees of P50,000.00.
With respect to the cross-claim of the defendant IBAA against its codefendant Atty. Adalia Francisco, the latter is ordered to reimburse the
former for the sums that the Bank shall pay to the plaintiff on the forged
checks including the interests paid thereon.
Further, the defendants are ordered to pay the costs.

Sometime in 1979, after an examination of the records of the GSIS, Ong

discovered that Diaz and Francisco had executed and signed seven
checks[4], of various dates and amounts, drawn against the IBAA and
payable to HCCC for completed and delivered work under the contract.
Ong, however, claims that these checks were never delivered to HCCC.
Upon inquiry with Diaz, Ong learned that the GSIS gave Francisco custody
of the checks since she promised that she would deliver the same to HCCC.
Instead, Francisco forged the signature of Ong, without his knowledge or
consent, at the dorsal portion of the said checks to make it appear that
HCCC had indorsed the checks; Francisco then indorsed the checks for a
second time by signing her name at the back of the checks and deposited
the checks in her IBAA savings account. IBAA credited Franciscos account
with the amount of the checks and the latter withdrew the amount so
credited.
On June 7, 1979, Ong filed complaints with the office of the city fiscal of
Quezon City, charging Francisco with estafa thru falsification of commercial
documents. Francisco denied having forged Ongs signature on the checks,
claiming that Ong himself indorsed the seven checks in behalf of HCCC and
delivered the same to Francisco in payment of the loans extended by
Francisco to HCCC. According to Francisco, she agreed to grant HCCC the
loans in the total amount of P585,000.00 and covered by eighteen
promissory notes in order to obviate the risk of the non-completion of the
project. As a means of repayment, Ong allegedly issued a Certification

Based upon the findings of handwriting experts from the National Bureau
of Investigation (NBI), the trial court held that Francisco had indeed forged
the signature of Ong to make it appear that he had indorsed the checks.
Also, the court ruled that there were no loans extended, reasoning that it
was unbelievable that HCCC was experiencing financial difficulties so as to
compel it to obtain the loans from AFRDC in view of the fact that the GSIS
had issued checks in favor of HCCC at about the same time that the
alleged advances were made. The trial court stated that it was plausible
that Francisco concealed the fact of issuance of the checks from private
respondents in order to make it appear as if she were accommodating
private respondents, when in truth she was lending HCCC its own money.
With regards to the Memorandum Agreement entered into between AFRDC
and HCCC in Civil Case No. Q-24628, the trial court held that the same did
not make any mention of the forged checks since private respondents were
as of yet unaware of their existence, that fact having been effectively
concealed by Francisco, until private respondents acquired knowledge of
Franciscos misdeeds in 1979.
IBAA was held liable to private respondents for having honored the checks
despite such obvious irregularities as the lack of initials to validate the
alterations made on the check, the absence of the signature of a cosignatory in the corporate checks of HCCC and the deposit of the checks on

a second indorsement in the savings account of Francisco. However, the

trial court allowed IBAA recourse against Francisco, who was ordered to
reimburse the IBAA for any sums it shall have to pay to private
respondents.[5]
Both Francisco and IBAA appealed the trial courts decision, but the Court of
Appeals dismissed IBAAs appeal for its failure to file its brief within the 45day extension granted by the appellate court. IBAAs motion for
reconsideration and petition for review on certiorari filed with this Court
were also similarly denied. On November 21, 1989, IBAA and HCCC entered
into a Compromise Agreement which was approved by the trial court,
wherein HCCC acknowledged receipt of the amount of P370,475.00 in full
satisfaction of its claims against IBAA, without prejudice to the right of the
latter to pursue its claims against Francisco.
On June 29, 1992, the Court of Appeals affirmed the trial courts ruling,
hence this petition for review on certiorari filed by petitioner, assigning the
following errors to the appealed decision
1. The respondent Court of Appeals erred in concluding that private
respondents did not owe Petitioner the sum covered by the Promissory
Notes Exh.2-2-A-2-P (FRANCISCO). Such conclusion was based mainly on
conjectures, surmises and speculation contrary to the unrebutted pleadings
and evidence presented by petitioner.
2. The respondent Court of Appeals erred in holding that Petitioner falsified
the signature of private respondent ONG on the checks in question without
any authority therefor which is patently contradictory to the unrebutted
pleading and evidence that petitioner was expressly authorized by
respondent HERBY thru ONG to collect all receivables of HERBY from GSIS
to pay the loans extended to them. (Exhibit 3).
3. That respondent Court of Appeals erred in holding that the seven checks
in question were not taken up in the liquidation and reconciliation of all
outstanding account between AFRDC and HERBY as acknowledged by the
parties in Memorandum Agreement (Exh. 5) is a pure conjecture, surmise
and speculation contrary to the unrebutted evidence presented by
petitioners. It is an inference made which is manifestly mistaken.
4. The respondent Court of Appeals erred in affirming the decision of the
lower court and dismissing the appeal.[6]
The pivotal issue in this case is whether or not Francisco forged the
signature of Ong on the seven checks. In this connection, we uphold the
lower courts finding that the subject matter of the present case,
specifically the seven checks, drawn by GSIS and AFRDC, dated between
October to November 1977, in the total amount of P370,475.00 and
payable to HCCC, was not included in the Memorandum Agreement
executed by HCCC and AFRDC in Civil Case No. Q-24628. As observed by
the trial court, aside from there being absolutely no mention of the checks
in the said agreement, the amounts represented by said checks could not

have been included in the Memorandum Agreement executed in 1978

because private respondents only discovered Franciscos acts of forgery in
1979. The lower courts found that Francisco was able to easily conceal
from private respondents even the fact of the issuance of the checks since
she was a co-signatory thereof.[7] We also note that Francisco had custody
of the checks, as proven by the check vouchers bearing her uncontested
signature,[8] by which she, in effect, acknowledged having received the
checks intended for HCCC. This contradicts Franciscos claims that the
checks were issued to Ong who delivered them to Francisco already
indorsed.[9]
As regards the forgery, we concur with the lower courts finding that
Francisco forged the signature of Ong on the checks to make it appear as if
Ong had indorsed said checks and that, after indorsing the checks for a
second time by signing her name at the back of the checks, Francisco
deposited said checks in her savings account with IBAA. The forgery was
satisfactorily established in the trial court upon the strength of the findings
of the NBI handwriting expert.[10] Other than petitioners self-serving
denials, there is nothing in the records to rebut the NBIs findings. Wellentrenched is the rule that findings of trial courts which are factual in
nature, especially when affirmed by the Court of Appeals, deserve to be
respected and affirmed by the Supreme Court, provided it is supported by
substantial evidence on record,[11] as it is in the case at bench.
Petitioner claims that she was, in any event, authorized to sign Ongs name
on the checks by virtue of the Certification executed by Ong in her favor
giving her the authority to collect all the receivables of HCCC from the
GSIS, including the questioned checks.[12] Petitioners alternative defense
must similarly fail. The Negotiable Instruments Law provides that where
any person is under obligation to indorse in a representative capacity, he
may indorse in such terms as to negative personal liability.[13] An agent,
when so signing, should indicate that he is merely signing in behalf of the
principal and must disclose the name of his principal; otherwise he shall be
held personally liable.[14] Even assuming that Francisco was authorized by
HCCC to sign Ongs name, still, Francisco did not indorse the instrument in
accordance with law. Instead of signing Ongs name, Francisco should have
signed her own name and expressly indicated that she was signing as an
agent of HCCC. Thus, the Certification cannot be used by Francisco to
validate her act of forgery.
Every person who, contrary to law, wilfully or negligently causes damage
to another, shall indemnify the latter for the same.[15] Due to her forgery
of Ongs signature which enabled her to deposit the checks in her own
account, Francisco deprived HCCC of the money due it from the GSIS
pursuant to the Land Development and Construction Contract. Thus, we
affirm respondent courts award of compensatory damages in the amount
of P370,475.00, but with a modification as to the interest rate which shall
be six percent (6%) per annum, to be computed from the date of the filing
of the complaint since the amount of damages was alleged in the
complaint;[16] however, the rate of interest shall be twelve percent (12%)
per annum from the time the judgment in this case becomes final and

executory until its satisfaction and the basis for the computation of this
twelve percent (12%) rate of interest shall be the amount of P370,475.00.
This is in accordance with the doctrine enunciated in Eastern Shipping
Lines, Inc. vs. Court of Appeals, et al.,[17] which was reiterated in
Philippine National Bank vs. Court of Appeals,[18] Philippine Airlines, Inc.
vs. Court of Appeals[19]and in Keng Hua Paper Products Co., Inc. vs. Court
of Appeals,[20] which provides that 1. When an obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

due his company were forged by petitioner and that petitioner had filed
baseless criminal complaints against him before the fiscals office of
Quezon City which disrupted HCCCs business operations.[23]
WHEREFORE, we AFFIRM the respondent courts decision promulgated on
June 29, 1992, upholding the February 16, 1988 decision of the trial court
in favor of private respondents, with the modification that the interest upon
the actual damages awarded shall be at six percent (6%) per annum, which
interest rate shall be computed from the time of the filing of the complaint
on November 19, 1979. However, the interest rate shall be twelve percent
(12%) per annum from the time the judgment in this case becomes final
and executory and until such amount is fully paid. The basis for
computation of the six percent and twelve percent rates of interest shall be
the amount of P370,475.00. No pronouncement as to costs.
SO ORDERED.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of six percent (6%) per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be twelve percent (12%) per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
We also sustain the award of exemplary damages in the amount of
P50,000.00. Under Article 2229 of the Civil Code, exemplary damages are
imposed by way of example or correction for the public good, in addition to
the moral, temperate, liquidated or compensatory damages. Considering
petitioners fraudulent act, we hold that an award of P50,000.00 would be
adequate, fair and reasonable. The grant of exemplary damages justifies
the award of attorneys fees in the amount of P50,000.00, and the award of
P5,000.00 for litigation expenses.[21]
The appellate courts award of P50,000.00 in moral damages is warranted.
Under Article 2217 of the Civil Code, moral damages may be granted upon
proof of physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injury.[22] Ong testitified that he suffered sleepless nights,
embarrassment, humiliation and anxiety upon discovering that the checks

by drawing a draft against the plaintiff, said draft being sent later to the
defendant for acceptance. As an added security for the payment of the
amounts advanced to Encal Press and Photo-Engraving, the plaintiff bank
also required defendant Aruego to execute a trust receipt in favor of said
bank wherein said defendant undertook to hold in trust for plaintiff the
periodicals and to sell the same with the promise to turn over to the
plaintiff the proceeds of the sale of said publication to answer for the
payment of all obligations arising from the draft. 8

G.R. Nos. L-25836-37 January 31, 1981

THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
FERNANDEZ, J.:
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the
order of the Court of First Instance of Manila, Branch XIII, in Civil Case No.
42066 denying his motion to set aside the order declaring him in default, 1
and from the order of said court in the same case denying his motion to set
aside the judgment rendered after he was declared in default. 2 These two
appeals of the defendant were docketed as CA-G.R. NO. 27734-R and CAG.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the
Court of Appeals to file one consolidated record on appeal of CA-G.R. NO.
27734-R and CA-G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First
Division, certified the consolidated appeal to the Supreme Court on the
ground that only questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against
Jose M. Aruego Civil Case No. 42066 for the recovery of the total sum of
about P35,000.00 with daily interest thereon from November 17, 1959 until
fully paid and commission equivalent to 3/8% for every thirty (30) days or
fraction thereof plus attorney's fees equivalent to 10% of the total amount
due and costs. 6 The complaint filed by the Philippine Bank of Commerce
contains twenty-two (22) causes of action referring to twenty-two (22)
transactions entered into by the said Bank and Aruego on different dates
covering the period from August 28, 1950 to March 14, 1951. 7 The sum
sought to be recovered represents the cost of the printing of "World
Current Events," a periodical published by the defendant. To facilitate the
payment of the printing the defendant obtained a credit accommodation
from the plaintiff. Thus, for every printing of the "World Current Events,"
the printer, Encal Press and Photo Engraving, collected the cost of printing

Aruego received a copy of the complaint together with the summons on

December 2, 1959. 9 On December 14, 1959 defendant filed an urgent
motion for extension of time to plead, and set the hearing on December
16, 1959. 10 At the hearing, the court denied defendant's motion for
extension. Whereupon, the defendant filed a motion to dismiss the
complaint on December 17, 1959 on the ground that the complaint states
no cause of action because:
a)
When the various bills of exchange were presented to the
defendant as drawee for acceptance, the amounts thereof had already
been paid by the plaintiff to the drawer (Encal Press and Photo Engraving),
without knowledge or consent of the defendant drawee.
b)
In the case of a bill of exchange, like those involved in the case at
bar, the defendant drawee is an accommodating party only for the drawer
(Encal Press and Photo-Engraving) and win be liable in the event that the
accommodating party (drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy
of which was received by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On
March 7, 1960, acting upon the motion for reconsideration filed by the
plaintiff, the trial court set aside its order dismissing the complaint and set
the case for hearing on March 15, 1960 at 8:00 in the morning. 14 A copy
of the order setting aside the order of dismissal was received by the
defendant on March 11, 1960 at 5:00 o'clock in the afternoon according to
the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone
the trial of the case on the ground that there having been no answer as
yet, the issues had not yet been joined. 15 On the same date, the
defendant filed his answer to the complaint interposing the following
defenses: That he signed the document upon which the plaintiff sues in his
capacity as President of the Philippine Education Foundation; that his
liability is only secondary; and that he believed that he was signing only as
an accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the
defendant in default on the ground that the defendant should have filed his
answer on March 11, 1960. He contends that by filing his answer on March
12, 1960, defendant was one day late. 17 On March 19, 1960 the trial court
declared the defendant in default. 18 The defendant learned of the order

declaring him in default on March 21, 1960. On March 22, 1960 the
defendant filed a motion to set aside the order of default alleging that
although the order of the court dated March 7, 1960 was received on
March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably
expected of the defendant to file his answer on the last day of the
reglementary period, March 11, 1960, within office hours, especially
because the order of the court dated March 7, 1960 was brought to the
attention of counsel only in the early hours of March 12, 1960. The
defendant also alleged that he has a good and substantial defense.
Attached to the motion are the affidavits of deputy sheriff Mamerto de la
Cruz that he served the order of the court dated March 7, 1960 on March
11, 1960, at 5:00 o'clock in the afternoon and the affidavit of the defendant
Aruego that he has a good and substantial defense. 19 The trial court
denied the defendant's motion on March 25, 1960. 20 On May 6, 1960, the
trial court rendered judgment sentencing the defendant to pay to the
plaintiff the sum of P35,444.35 representing the total amount of his
obligation to the said plaintiff under the twenty-two (22) causes of action
alleged in the complaint as of November 15, 1957 and the sum of
P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated
March 25, 1961 denying his motion to set aside the order declaring him in
default, an appeal bond in the amount of P60.00, and his record on appeal.
The plaintiff filed his opposition to the approval of defendant's record on
appeal on May 13, 1960. The following day, May 14, 1960, the lower court
dismissed defendant's appeal from the order dated March 25, 1960
denying his motion to set aside the order of default. 22 On May 19, 1960,
the defendant filed a motion for reconsideration of the trial court's order
dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed the
defendant's motion for reconsideration of the order dismissing appeal. 24
On May 21, 1960, the trial court reconsidered its previous order dismissing
the appeal and approved the defendant's record on appeal. 25 On May 30,
1960, the defendant received a copy of a notice from the Clerk of Court
dated May 26, 1960, informing the defendant that the record on appeal
filed ed by the defendant was forwarded to the Clerk of Court of Appeals.
26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered
after he was declared in default reiterating the same ground previously
advanced by him in his motion for relief from the order of default. 27 Upon
opposition of the plaintiff filed on June 3, 1960, 28 the trial court denied the
defendant's motion to set aside the judgment by default in an order of June
11, 1960. 29 On June 20, 1960, the defendant filed his notice of appeal
from the order of the court denying his motion to set aside the judgment
by default, his appeal bond, and his record on appeal. The defendant's
record on appeal was approved by the trial court on June 25, 1960. 30
Thus, the defendant had two appeals with the Court of Appeals: (1) Appeal
from the order of the lower court denying his motion to set aside the order
of default docketed as CA-G.R. NO. 27734-R; (2) Appeal from the order
denying his motion to set aside the judgment by default docketed as CAG.R. NO. 27940-R.

In his brief, the defendant-appellant assigned the following errors:

I
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN
DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE
DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN
AN APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR
RELIEF OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST
DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken
against him through his mistake, inadvertence, surprise or excusable
neglect, he must show to the court that he has a meritorious defense. 32 In
other words, in order to set aside the order of default, the defendant must
not only show that his failure to answer was due to fraud, accident, mistake
or excusable negligence but also that he has a meritorious defense.
The record discloses that Aruego received a copy of the complaint together
with the summons on December 2, 1960; that on December 17, 1960, the
last day for filing his answer, Aruego filed a motion to dismiss; that on
December 22, 1960 the lower court dismissed the complaint; that on
January 23, 1960, the plaintiff filed a motion for reconsideration and on
March 7, 1960, acting upon the motion for reconsideration, the trial court
issued an order setting aside the order of dismissal; that a copy of the
order was received by the defendant on March 11, 1960 at 5:00 o'clock in
the afternoon as shown in the affidavit of the deputy sheriff; and that on
the following day, March 12, 1960, the defendant filed his answer to the
complaint.
The failure then of the defendant to file his answer on the last day for
pleading is excusable. The order setting aside the dismissal of the
complaint was received at 5:00 o'clock in the afternoon. It was therefore
impossible for him to have filed his answer on that same day because the
courts then held office only up to 5:00 o'clock in the afternoon. Moreover,
the defendant immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to
answer was due to excusable negligence, he has failed to show that he has
a meritorious defense. The defendant does not have a good and
substantial defense.

Defendant Aruego's defenses consist of the following:

a)
The defendant signed the bills of exchange referred to in the
plaintiff's complaint in a representative capacity, as the then President of
the Philippine Education Foundation Company, publisher of "World Current
Events and Decision Law Journal," printed by Encal Press and PhotoEngraving, drawer of the said bills of exchange in favor of the plaintiff
bank;
b)
The defendant signed these bills of exchange not as principal
obligor, but as accommodation or additional party obligor, to add to the
security of said plaintiff bank. The reason for this statement is that unlike
real bills of exchange, where payment of the face value is advanced to the
drawer only upon acceptance of the same by the drawee, in the case in
question, payment for the supposed bills of exchange were made before
acceptance; so that in effect, although these documents are labelled bills
of exchange, legally they are not bills of exchange but mere instruments
evidencing indebtedness of the drawee who received the face value
thereof, with the defendant as only additional security of the same. 33
The first defense of the defendant is that he signed the supposed bills of
exchange as an agent of the Philippine Education Foundation Company
where he is president. Section 20 of the Negotiable Instruments Law
provides that "Where the instrument contains or a person adds to his
signature words indicating that he signs for or on behalf of a principal or in
a representative capacity, he is not liable on the instrument if he was duly
authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does
not exempt him from personal liability."

liability to the other parties thereto because he wants to accommodate

another. In the instant case, the defendant signed as a drawee/acceptor.
Under the Negotiable Instrument Law, a drawee is primarily liable. Thus, if
the defendant who is a lawyer, he should not have signed as an
acceptor/drawee. In doing so, he became primarily and personally liable for
the drafts.
The defendant also contends that the drafts signed by him were not really
bills of exchange but mere pieces of evidence of indebtedness because
payments were made before acceptance. This is also without merit. Under
the Negotiable Instruments Law, a bill of exchange is an unconditional
order in writting addressed by one person to another, signed by the person
giving it, requiring the person to whom it is addressed to pay on demand or
at a fixed or determinable future time a sum certain in money to order or
to bearer. 36 As long as a commercial paper conforms with the definition of
a bill of exchange, that paper is considered a bill of exchange. The nature
of acceptance is important only in the determination of the kind of
liabilities of the parties involved, but not in the determination of whether a
commercial paper is a bill of exchange or not.
It is evident then that the defendant's appeal can not prosper. To grant the
defendant's prayer will result in a new trial which will serve no purpose and
will just waste the time of the courts as well as of the parties because the
defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court
of First Instance of Manila denying the petition for relief from the judgment
rendered in said case is hereby affirmed, without pronouncement as to
costs.
SO ORDERED.

An inspection of the drafts accepted by the defendant shows that nowhere

has he disclosed that he was signing as a representative of the Philippine
Education Foundation Company. 34 He merely signed as follows: "JOSE
ARUEGO (Acceptor) (SGD) JOSE ARGUEGO For failure to disclose his
principal, Aruego is personally liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an
accommodation party and as such, should be made liable only after a
showing that the drawer is incapable of paying. This contention is also
without merit.
An accommodation party is one who has signed the instrument as maker,
drawer, indorser, without receiving value therefor and for the purpose of
lending his name to some other person. Such person is liable on the
instrument to a holder for value, notwithstanding such holder, at the time
of the taking of the instrument knew him to be only an accommodation
party. 35 In lending his name to the accommodated party, the
accommodation party is in effect a surety for the latter. He lends his name
to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes

vs.
BACOLOD-MURCIA MILLING CO., INC., defendant-appellee.
Taada, Teehankee and Carreon for plaintiffs-appellants.
Hilado and Hilado for defendant-appellee.
REYES, J.B.L., J.:
Appeal on points of law from a judgment of the Court of First Instance of
Occidental Negros, in its Civil Case No. 2603, dismissing plaintiff's
complaint that sought to compel the defendant Milling Company to
increase plaintiff's share in the sugar produced from their cane, from 60%
to 62.33%, starting from the 1951-1952 crop year.1wph1.t
It is undisputed that plaintiffs-appellants, Alfredo Montelibano, Alejandro
Montelibano, and the Limited co-partnership Gonzaga and Company, had
been and are sugar planters adhered to the defendant-appellee's sugar
central mill under identical milling contracts. Originally executed in 1919,
said contracts were stipulated to be in force for 30 years starting with the
1920-21 crop, and provided that the resulting product should be divided in
the ratio of 45% for the mill and 55% for the planters. Sometime in 1936, it
was proposed to execute amended milling contracts, increasing the
planters' share to 60% of the manufactured sugar and resulting molasses,
besides other concessions, but extending the operation of the milling
contract from the original 30 years to 45 years. To this effect, a printed
Amended Milling Contract form was drawn up. On August 20, 1936, the
Board of Directors of the appellee Bacolod-Murcia Milling Co., Inc., adopted
a resolution (Acts No. 11, Acuerdo No. 1) granting further concessions to
the planters over and above those contained in the printed Amended
Milling Contract. The bone of contention is paragraph 9 of this resolution,
that reads as follows:
ACTA No. 11
SESSION DE LA JUNTA DIRECTIVA
AGOSTO 20, 1936
xxx

xxx

xxx

Acuerdo No. 1. Previa mocion debidamente secundada, la Junta en

consideracion a una peticion de los plantadores hecha por un comite
nombrado por los mismos, acuerda enmendar el contrato de molienda
enmendado medientelas siguentes:
xxx

G.R. No. L-15092

May 18, 1962

ALFREDO MONTELIBANO, ET AL., plaintiffs-appellants,

xxx

xxx

9.a Que si durante la vigencia de este contrato de Molienda Enmendado,

lascentrales azucareras, de Negros Occidental, cuya produccion anual de
azucar centrifugado sea mas de una tercera parte de la produccion total de
todas lascentrales azucareras de Negros Occidental, concedieren a sus
plantadores mejores condiciones que la estipuladas en el presente
contrato, entonces esas mejores condiciones se concederan y por el

presente se entenderan concedidas a los platadores que hayan otorgado

este Contrato de Molienda Enmendado.
Appellants signed and executed the printed Amended Milling Contract on
September 10, 1936, but a copy of the resolution of August 10, 1936,
signed by the Central's General Manager, was not attached to the printed
contract until April 17, 1937; with the notation
Las enmiendas arriba transcritas forman parte del contrato de molienda
enmendado, otorgado por y la Bacolod-Murcia Milling Co., Inc.
In 1953, the appellants initiated the present action, contending that three
Negros sugar centrals (La Carlota, Binalbagan-Isabela and San Carlos), with
a total annual production exceeding one-third of the production of all the
sugar central mills in the province, had already granted increased
participation (of 62.5%) to their planters, and that under paragraph 9 of
the resolution of August 20, 1936, heretofore quoted, the appellee had
become obligated to grant similar concessions to the plaintiffs (appellants
herein). The appellee Bacolod-Murcia Milling Co., inc., resisted the claim,
and defended by urging that the stipulations contained in the resolution
were made without consideration; that the resolution in question was,
therefore, null and void ab initio, being in effect a donation that was ultra
vires and beyond the powers of the corporate directors to adopt.
After trial, the court below rendered judgment upholding the stand of the
defendant Milling company, and dismissed the complaint. Thereupon,
plaintiffs duly appealed to this Court.
We agree with appellants that the appealed decisions can not stand. It
must be remembered that the controverted resolution was adopted by
appellee corporation as a supplement to, or further amendment of, the
proposed milling contract, and that it was approved on August 20, 1936,
twenty-one days prior to the signing by appellants on September 10, of the
Amended Milling Contract itself; so that when the Milling Contract was
executed, the concessions granted by the disputed resolution had been
already incorporated into its terms. No reason appears of record why, in
the face of such concessions, the appellants should reject them or consider
them as separate and apart from the main amended milling contract,
specially taking into account that appellant Alfredo Montelibano was, at the
time, the President of the Planters Association (Exhibit 4, p. 11) that had
agitated for the concessions embodied in the resolution of August 20,
1936. That the resolution formed an integral part of the amended milling
contract, signed on September 10, and not a separate bargain, is further
shown by the fact that a copy of the resolution was simply attached to the
printed contract without special negotiations or agreement between the
parties.
It follows from the foregoing that the terms embodied in the resolution of
August 20, 1936 were supported by the same causa or consideration
underlying the main amended milling contract; i.e., the promises and
obligations undertaken thereunder by the planters, and, particularly, the

extension of its operative period for an additional 15 years over and

beyond the 30 years stipulated in the original contract. Hence, the
conclusion of the court below that the resolution constituted gratuitous
concessions not supported by any consideration is legally untenable.
All disquisition concerning donations and the lack of power of the directors
of the respondent sugar milling company to make a gift to the planters
would be relevant if the resolution in question had embodied a separate
agreement after the appellants had already bound themselves to the terms
of the printed milling contract. But this was not the case. When the
resolution was adopted and the additional concessions were made by the
company, the appellants were not yet obligated by the terms of the printed
contract, since they admittedly did not sign it until twenty-one days later,
on September 10, 1936. Before that date, the printed form was no more
than a proposal that either party could modify at its pleasure, and the
appellee actually modified it by adopting the resolution in question. So that
by September 10, 1936 defendant corporation already understood that the
printed terms were not controlling, save as modified by its resolution of
August 20, 1936; and we are satisfied that such was also the
understanding of appellants herein, and that the minds of the parties met
upon that basis. Otherwise there would have been no consent or "meeting
of the minds", and no binding contract at all. But the conduct of the parties
indicates that they assumed, and they do not now deny, that the signing of
the contract on September 10, 1936, did give rise to a binding agreement.
That agreement had to exist on the basis of the printed terms as modified
by the resolution of August 20, 1936, or not at all. Since there is no rational
explanation for the company's assenting to the further concessions asked
by the planters before the contracts were signed, except as further
inducement for the planters to agree to the extension of the contract
period, to allow the company now to retract such concessions would be to
sanction a fraud upon the planters who relied on such additional
stipulations.
The same considerations apply to the "void innovation" theory of
appellees. There can be no novation unless two distinct and successive
binding contracts take place, with the later designed to replace the
preceding convention. Modifications introduced before a bargain becomes
obligatory can in no sense constitute novation in law.
Stress is placed on the fact that the text of the Resolution of August 20,
1936 was not attached to the printed contract until April 17, 1937. But,
except in the case of statutory forms or solemn agreements (and it is not
claimed that this is one), it is the assent and concurrence (the "meeting of
the minds") of the parties, and not the setting down of its terms, that
constitutes a binding contract. And the fact that the addendum is only
signed by the General Manager of the milling company emphasizes that
the addition was made solely in order that the memorial of the terms of the
agreement should be full and complete.
Much is made of the circumstance that the report submitted by the Board
of Directors of the appellee company in November 19, 1936 (Exhibit 4) only

made mention of 90%, the planters having agreed to the 60-40 sharing of
the sugar set forth in the printed "amended milling contracts", and did not
make any reference at all to the terms of the resolution of August 20, 1936.
But a reading of this report shows that it was not intended to inventory all
the details of the amended contract; numerous provisions of the printed
terms are alao glossed over. The Directors of the appellee Milling Company
had no reason at the time to call attention to the provisions of the
resolution in question, since it contained mostly modifications in detail of
the printed terms, and the only major change was paragraph 9 heretofore
quoted; but when the report was made, that paragraph was not yet in
effect, since it was conditioned on other centrals granting better
concessions to their planters, and that did not happen until after 1950.
There was no reason in 1936 to emphasize a concession that was not yet,
and might never be, in effective operation.

And it appearing undisputed in this appeal that sugar centrals of La

Carlota, Hawaiian Philippines, San Carlos and Binalbagan (which produce
over one-third of the entire annual sugar production in Occidental Negros)
have granted progressively increasing participations to their adhered
planter at an average rate of

There can be no doubt that the directors of the appellee company had
authority to modify the proposed terms of the Amended Milling Contract for
the purpose of making its terms more acceptable to the other contracting
parties. The rule is that

WHEREFORE, the decision under appeal is reversed and set aside; and
judgment is decreed sentencing the defendant-appellee to pay plaintiffsappellants the differential or increase of participation in the milled sugar in
accordance with paragraph 9 of the appellee Resolution of August 20,
1936, over and in addition to the 60% expressed in the printed Amended
Milling Contract, or the value thereof when due, as follows:

It is a question, therefore, in each case of the logical relation of the act to

the corporate purpose expressed in the charter. If that act is one which is
lawful in itself, and not otherwise prohibited, is done for the purpose of
serving corporate ends, and is reasonably tributary to the promotion of
those ends, in a substantial, and not in a remote and fanciful sense, it may
fairly be considered within charter powers. The test to be applied is
whether the act in question is in direct and immediate furtherance of the
corporation's business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has the power
to do it; otherwise, not. (Fletcher Cyc. Corp., Vol. 6, Rev. Ed. 1950, pp. 266268)
As the resolution in question was passed in good faith by the board of
directors, it is valid and binding, and whether or not it will cause losses or
decrease the profits of the central, the court has no authority to review
them.
They hold such office charged with the duty to act for the corporation
according to their best judgment, and in so doing they cannot be controlled
in the reasonable exercise and performance of such duty. Whether the
business of a corporation should be operated at a loss during depression,
or close down at a smaller loss, is a purely business and economic problem
to be determined by the directors of the corporation and not by the court.
It is a well-known rule of law that questions of policy or of management are
left solely to the honest decision of officers and directors of a corporation,
and the court is without authority to substitute its judgment of the board of
directors; the board is the business manager of the corporation, and so
long as it acts in good faith its orders are not reviewable by the courts.
(Fletcher on Corporations, Vol. 2, p. 390).

62.333%
for the 1951-52 crop year;
64.2% for 1952-53;
64.3% for 1953-54;
64.5% for 1954-55; and
63.5% for 1955-56,
the appellee Bacolod-Murcia Milling Company is, under the terms of its
Resolution of August 20, 1936, duty bound to grant similar increases to
plaintiffs-appellants herein.

0,333% to appellants Montelibano for the 1951-1952 crop year, said

appellants having received an additional 2% corresponding to said year in
October, 1953;
2.333% to appellant Gonzaga & Co., for the 1951-1952 crop year; and to all
appellants thereafter
4.2% for the 1952-1953 crop year;
4.3% for the 1953-1954 crop year;
4.5% for the 1954-1955 crop year;
3.5% for the 1955-1956 crop year;
with interest at the legal rate on the value of such differential during the
time they were withheld; and the right is reserved to plaintiffs-appellants to
sue for such additional increases as they may be entitled to for the crop
years subsequent to those herein adjudged.
Costs against appellee, Bacolod-Murcia Milling Co.

G.R. No. 107382/G.R. No. 107612

January 31, 1996

ASSOCIATED BANK, petitioner,

vs.
HON. COURT OF APPEALS, PROVINCE OF TARLAC and PHILIPPINE
NATIONAL BANK, respondents.
xxxxxxxxxxxxxxxxxxxxx
G.R. No. 107612

January 31, 1996

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HONORABLE COURT OF APPEALS, PROVINCE OF TARLAC, and ASSOCIATED
BANK, respondents.
DECISION
ROMERO, J.:
Where thirty checks bearing forged endorsements are paid, who bears the
loss, the drawer, the drawee bank or the collecting bank?
This is the main issue in these consolidated petitions for review assailing
the decision of the Court of Appeals in "Province of Tarlac v. Philippine

National Bank v. Associated Bank v. Fausto Pangilinan, et. al." (CA-G.R. No.
CV No. 17962). 1

admitted that his wife and Pangilinan's wife are first cousins, the manager
denied having given Pangilinan preferential treatment on this account. 8

The facts of the case are as follows:

On February 26, 1981, the Provincial Treasurer wrote the manager of the
PNB seeking the restoration of the various amounts debited from the
current account of the Province. 9

The Province of Tarlac maintains a current account with the Philippine

National Bank (PNB) Tarlac Branch where the provincial funds are
deposited. Checks issued by the Province are signed by the Provincial
Treasurer and countersigned by the Provincial Auditor or the Secretary of
the Sangguniang Bayan.
A portion of the funds of the province is allocated to the Concepcion
Emergency Hospital. 2 The allotment checks for said government hospital
are drawn to the order of "Concepcion Emergency Hospital, Concepcion,
Tarlac" or "The Chief, Concepcion Emergency Hospital, Concepcion, Tarlac."
The checks are released by the Office of the Provincial Treasurer and
received for the hospital by its administrative officer and cashier.
In January 1981, the books of account of the Provincial Treasurer were postaudited by the Provincial Auditor. It was then discovered that the hospital
did not receive several allotment checks drawn by the Province.
On February 19, 1981, the Provincial Treasurer requested the manager of
the PNB to return all of its cleared checks which were issued from 1977 to
1980 in order to verify the regularity of their encashment. After the checks
were examined, the Provincial Treasurer learned that 30 checks amounting
to P203,300.00 were encashed by one Fausto Pangilinan, with the
Associated Bank acting as collecting bank.
It turned out that Fausto Pangilinan, who was the administrative officer and
cashier of payee hospital until his retirement on February 28, 1978,
collected the questioned checks from the office of the Provincial Treasurer.
He claimed to be assisting or helping the hospital follow up the release of
the checks and had official receipts. 3 Pangilinan sought to encash the first
check 4 with Associated Bank. However, the manager of Associated Bank
refused and suggested that Pangilinan deposit the check in his personal
savings account with the same bank. Pangilinan was able to withdraw the
money when the check was cleared and paid by the drawee bank, PNB.
After forging the signature of Dr. Adena Canlas who was chief of the payee
hospital, Pangilinan followed the same procedure for the second check, in
the amount of P5,000.00 and dated April 20, 1978, 5 as well as for twentyeight other checks of various amounts and on various dates. The last check
negotiated by Pangilinan was for f8,000.00 and dated February 10, 1981. 6
All the checks bore the stamp of Associated Bank which reads "All prior
endorsements guaranteed ASSOCIATED BANK."
Jesus David, the manager of Associated Bank testified that Pangilinan
made it appear that the checks were paid to him for certain projects with
the hospital. 7 He did not find as irregular the fact that the checks were not
payable to Pangilinan but to the Concepcion Emergency Hospital. While he

In turn, the PNB manager demanded reimbursement from the Associated

Bank on May 15, 1981. 10
As both banks resisted payment, the Province of Tarlac brought suit against
PNB which, in turn, impleaded Associated Bank as third-party defendant.
The latter then filed a fourth-party complaint against Adena Canlas and
Fausto Pangilinan. 11
After trial on the merits, the lower court rendered its decision on March 21,
1988, disposing as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1.
On the basic complaint, in favor of plaintiff Province of Tarlac and
against defendant Philippine National Bank (PNB), ordering the latter to
pay to the former, the sum of Two Hundred Three Thousand Three Hundred
(P203,300.00) Pesos with legal interest thereon from March 20, 1981 until
fully paid;
2.
On the third-party complaint, in favor of defendant/third-party
plaintiff Philippine National Bank (PNB) and against third-party
defendant/fourth-party plaintiff Associated Bank ordering the latter to
reimburse to the former the amount of Two Hundred Three Thousand Three
Hundred (P203,300.00) Pesos with legal interests thereon from March 20,
1981 until fully paid;.
3.
On the fourth-party complaint, the same is hereby ordered
dismissed for lack of cause of action as against fourth-party defendant
Adena Canlas and lack of jurisdiction over the person of fourth-party
defendant Fausto Pangilinan as against the latter.
4.
On the counterclaims on the complaint, third-party complaint and
fourth-party complaint, the same are hereby ordered dismissed for lack of
merit.
SO ORDERED. 12
PNB and Associated Bank appealed to the Court of Appeals. 13 Respondent
court affirmed the trial court's decision in toto on September 30, 1992.
Hence these consolidated petitions which seek a reversal of respondent
appellate court's decision.

PNB assigned two errors. First, the bank contends that respondent court
erred in exempting the Province of Tarlac from liability when, in fact, the
latter was negligent because it delivered and released the questioned
checks to Fausto Pangilinan who was then already retired as the hospital's
cashier and administrative officer. PNB also maintains its innocence and
alleges that as between two innocent persons, the one whose act was the
cause of the loss, in this case the Province of Tarlac, bears the loss.
Next, PNB asserts that it was error for the court to order it to pay the
province and then seek reimbursement from Associated Bank. According to
petitioner bank, respondent appellate Court should have directed
Associated Bank to pay the adjudged liability directly to the Province of
Tarlac to avoid circuity. 14
Associated Bank, on the other hand, argues that the order of liability
should be totally reversed, with the drawee bank (PNB) solely and
ultimately bearing the loss.
Respondent court allegedly erred in applying Section 23 of the Philippine
Clearing House Rules instead of Central Bank Circular No. 580, which,
being an administrative regulation issued pursuant to law, has the force
and effect of law. 15 The PCHC Rules are merely contractual stipulations
among and between member-banks. As such, they cannot prevail over the
aforesaid CB Circular.
It likewise contends that PNB, the drawee bank, is estopped from asserting
the defense of guarantee of prior indorsements against Associated Bank,
the collecting bank. In stamping the guarantee (for all prior indorsements),
it merely followed a mandatory requirement for clearing and had no choice
but to place the stamp of guarantee; otherwise, there would be no
clearing. The bank will be in a "no-win" situation and will always bear the
loss as against the drawee bank. 16
Associated Bank also claims that since PNB already cleared and paid the
value of the forged checks in question, it is now estopped from asserting
the defense that Associated Bank guaranteed prior indorsements. The
drawee bank allegedly has the primary duty to verify the genuineness of
payee's indorsement before paying the check. 17
While both banks are innocent of the forgery, Associated Bank claims that
PNB was at fault and should solely bear the loss because it cleared and
paid the forged checks.
xxx

xxx

xxx

The case at bench concerns checks payable to the order of Concepcion

Emergency Hospital or its Chief. They were properly issued and bear the
genuine signatures of the drawer, the Province of Tarlac. The infirmity in
the questioned checks lies in the payee's (Concepcion Emergency Hospital)
indorsements which are forgeries. At the time of their indorsement, the
checks were order instruments.

Checks having forged indorsements should be differentiated from forged

checks or checks bearing the forged signature of the drawer.
Section 23 of the Negotiable Instruments Law (NIL) provides:
Sec. 23.
FORGED SIGNATURE, EFFECT OF. When a signature is
forged or made without authority of the person whose signature it purports
to be, it is wholly inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature unless the party
against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority.
A forged signature, whether it be that of the drawer or the payee, is wholly
inoperative and no one can gain title to the instrument through it. A person
whose signature to an instrument was forged was never a party and never
consented to the contract which allegedly gave rise to such instrument. 18
Section 23 does not avoid the instrument but only the forged signature. 19
Thus, a forged indorsement does not operate as the payee's indorsement.
The exception to the general rule in Section 23 is where "a party against
whom it is sought to enforce a right is precluded from setting up the
forgery or want of authority." Parties who warrant or admit the genuineness
of the signature in question and those who, by their acts, silence or
negligence are estopped from setting up the defense of forgery, are
precluded from using this defense. Indorsers, persons negotiating by
delivery and acceptors are warrantors of the genuineness of the signatures
on the instrument. 20
In bearer instruments, the signature of the payee or holder is unnecessary
to pass title to the instrument. Hence, when the indorsement is a forgery,
only the person whose signature is forged can raise the defense of forgery
against a holder in due course. 21
The checks involved in this case are order instruments, hence, the
following discussion is made with reference to the effects of a forged
indorsement on an instrument payable to order.
Where the instrument is payable to order at the time of the forgery, such
as the checks in this case, the signature of its rightful holder (here, the
payee hospital) is essential to transfer title to the same instrument. When
the holder's indorsement is forged, all parties prior to the forgery may raise
the real defense of forgery against all parties subsequent thereto. 22
An indorser of an order instrument warrants "that the instrument is
genuine and in all respects what it purports to be; that he has a good title
to it; that all prior parties had capacity to contract; and that the instrument
is at the time of his indorsement valid and subsisting." 23 He cannot
interpose the defense that signatures prior to him are forged.

A collecting bank where a check is deposited and which indorses the check
upon presentment with the drawee bank, is such an indorser. So even if the
indorsement on the check deposited by the banks's client is forged, the
collecting bank is bound by his warranties as an indorser and cannot set up
the defense of forgery as against the drawee bank.
The bank on which a check is drawn, known as the drawee bank, is under
strict liability to pay the check to the order of the payee. The drawer's
instructions are reflected on the face and by the terms of the check.
Payment under a forged indorsement is not to the drawer's order. When
the drawee bank pays a person other than the payee, it does not comply
with the terms of the check and violates its duty to charge its customer's
(the drawer) account only for properly payable items. Since the drawee
bank did not pay a holder or other person entitled to receive payment, it
has no right to reimbursement from the drawer. 24 The general rule then is
that the drawee bank may not debit the drawer's account and is not
entitled to indemnification from the drawer. 25 The risk of loss must
perforce fall on the drawee bank.
However, if the drawee bank can prove a failure by the customer/drawer to
exercise ordinary care that substantially contributed to the making of the
forged signature, the drawer is precluded from asserting the forgery.
If at the same time the drawee bank was also negligent to the point of
substantially contributing to the loss, then such loss from the forgery can
be apportioned between the negligent drawer and the negligent bank. 26
In cases involving a forged check, where the drawer's signature is forged,
the drawer can recover from the drawee bank. No drawee bank has a right
to pay a forged check. If it does, it shall have to recredit the amount of the
check to the account of the drawer. The liability chain ends with the
drawee bank whose responsibility it is to know the drawer's signature since
the latter is its customer. 27
In cases involving checks with forged indorsements, such as the present
petition, the chain of liability does not end with the drawee bank. The
drawee bank may not debit the account of the drawer but may generally
pass liability back through the collection chain to the party who took from
the forger and, of course, to the forger himself, if available. 28 In other
words, the drawee bank canseek reimbursement or a return of the amount
it paid from the presentor bank or person. 29 Theoretically, the latter can
demand reimbursement from the person who indorsed the check to it and
so on. The loss falls on the party who took the check from the forger, or on
the forger himself.
In this case, the checks were indorsed by the collecting bank (Associated
Bank) to the drawee bank (PNB). The former will necessarily be liable to
the latter for the checks bearing forged indorsements. If the forgery is that
of the payee's or holder's indorsement, the collecting bank is held liable,
without prejudice to the latter proceeding against the forger.

Since a forged indorsement is inoperative, the collecting bank had no right

to be paid by the drawee bank. The former must necessarily return the
money paid by the latter because it was paid wrongfully. 30
More importantly, by reason of the statutory warranty of a general indorser
in section 66 of the Negotiable Instruments Law, a collecting bank which
indorses a check bearing a forged indorsement and presents it to the
drawee bank guarantees all prior indorsements, including the forged
indorsement. It warrants that the instrument is genuine, and that it is valid
and subsisting at the time of his indorsement. Because the indorsement is
a forgery, the collecting bank commits a breach of this warranty and will be
accountable to the drawee bank. This liability scheme operates without
regard to fault on the part of the collecting/presenting bank. Even if the
latter bank was not negligent, it would still be liable to the drawee bank
because of its indorsement.
The Court has consistently ruled that "the collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the
genuineness of all prior endorsements considering that the act of
presenting the check for payment to the drawee is an assertion that the
party making the presentment has done its duty to ascertain the
genuineness of the endorsements." 31
The drawee bank is not similarly situated as the collecting bank because
the former makes no warranty as to the genuineness. of any indorsement.
32 The drawee bank's duty is but to verify the genuineness of the drawer's
signature and not of the indorsement because the drawer is its client.
Moreover, the collecting bank is made liable because it is privy to the
depositor who negotiated the check. The bank knows him, his address and
history because he is a client. It has taken a risk on his deposit. The bank is
also in a better position to detect forgery, fraud or irregularity in the
indorsement.
Hence, the drawee bank can recover the amount paid on the check bearing
a forged indorsement from the collecting bank. However, a drawee bank
has the duty to promptly inform the presentor of the forgery upon
discovery. If the drawee bank delays in informing the presentor of the
forgery, thereby depriving said presentor of the right to recover from the
forger, the former is deemed negligent and can no longer recover from the
presentor. 33
Applying these rules to the case at bench, PNB, the drawee bank, cannot
debit the current account of the Province of Tarlac because it paid checks
which bore forged indorsements. However, if the Province of Tarlac as
drawer was negligent to the point of substantially contributing to the loss,
then the drawee bank PNB can charge its account. If both drawee bankPNB and drawer-Province of Tarlac were negligent, the loss should be
properly apportioned between them.

The loss incurred by drawee bank-PNB can be passed on to the collecting

bank-Associated Bank which presented and indorsed the checks to it.
Associated Bank can, in turn, hold the forger, Fausto Pangilinan, liable.
If PNB negligently delayed in informing Associated Bank of the forgery,
thus depriving the latter of the opportunity to recover from the forger, it
forfeits its right to reimbursement and will be made to bear the loss.
After careful examination of the records, the Court finds that the Province
of Tarlac was equally negligent and should, therefore, share the burden of
loss from the checks bearing a forged indorsement.
The Province of Tarlac permitted Fausto Pangilinan to collect the checks
when the latter, having already retired from government service, was no
longer connected with the hospital. With the exception of the first check
(dated January 17, 1978), all the checks were issued and released after
Pangilinan's retirement on February 28, 1978. After nearly three years, the
Treasurer's office was still releasing the checks to the retired cashier. In
addition, some of the aid allotment checks were released to Pangilinan and
the others to Elizabeth Juco, the new cashier. The fact that there were now
two persons collecting the checks for the hospital is an unmistakable sign
of an irregularity which should have alerted employees in the Treasurer's
office of the fraud being committed. There is also evidence indicating that
the provincial employees were aware of Pangilinan's retirement and
consequent dissociation from the hospital. Jose Meru, the Provincial
Treasurer, testified:.

The failure of the Province of Tarlac to exercise due care contributed to a

significant degree to the loss tantamount to negligence. Hence, the
Province of Tarlac should be liable for part of the total amount paid on the
questioned checks.
The drawee bank PNB also breached its duty to pay only according to the
terms of the check. Hence, it cannot escape liability and should also bear
part of the loss.
As earlier stated, PNB can recover from the collecting bank.
In the case of Associated Bank v. CA, 35 six crossed checks with forged
indorsements were deposited in the forger's account with the collecting
bank and were later paid by four different drawee banks. The Court found
the collecting bank (Associated) to be negligent and held:
The Bank should have first verified his right to endorse the crossed checks,
of which he was not the payee, and to deposit the proceeds of the checks
to his own account. The Bank was by reason of the nature of the checks
put upon notice that they were issued for deposit only to the private
respondent's account. . . .
The situation in the case at bench is analogous to the above case, for it
was not the payee who deposited the checks with the collecting bank.
Here, the checks were all payable to Concepcion Emergency Hospital but it
was Fausto Pangilinan who deposited the checks in his personal savings
account.

ATTY. MORGA:
Q
Now, is it true that for a given month there were two releases of
checks, one went to Mr. Pangilinan and one went to Miss Juco?
JOSE MERU:
A

Yes, sir.

Q
Will you please tell us how at the time (sic) when the authorized
representative of Concepcion Emergency Hospital is and was supposed to
be Miss Juco?
A
Well, as far as my investigation show (sic) the assistant cashier told
me that Pangilinan represented himself as also authorized to help in the
release of these checks and we were apparently misled because they
accepted the representation of Pangilinan that he was helping them in the
release of the checks and besides according to them they were, Pangilinan,
like the rest, was able to present an official receipt to acknowledge these
receipts and according to them since this is a government check and
believed that it will eventually go to the hospital following the standard
procedure of negotiating government checks, they released the checks to
Pangilinan aside from Miss Juco.34

Although Associated Bank claims that the guarantee stamped on the

checks (All prior and/or lack of endorsements guaranteed) is merely a
requirement forced upon it by clearing house rules, it cannot but remain
liable. The stamp guaranteeing prior indorsements is not an empty rubric
which a bank must fulfill for the sake of convenience. A bank is not
required to accept all the checks negotiated to it. It is within the bank's
discretion to receive a check for no banking institution would consciously
or deliberately accept a check bearing a forged indorsement. When a
check is deposited with the collecting bank, it takes a risk on its depositor.
It is only logical that this bank be held accountable for checks deposited by
its customers.
A delay in informing the collecting bank (Associated Bank) of the forgery,
which deprives it of the opportunity to go after the forger, signifies
negligence on the part of the drawee bank (PNB) and will preclude it from
claiming reimbursement.
It is here that Associated Bank's assignment of error concerning C.B.
Circular No. 580 and Section 23 of the Philippine Clearing House
Corporation Rules comes to fore. Under Section 4(c) of CB Circular No. 580,
items bearing a forged endorsement shall be returned within twenty-Sour
(24) hours after discovery of the forgery but in no event beyond the period
fixed or provided by law for filing of a legal action by the returning bank.

Section 23 of the PCHC Rules deleted the requirement that items bearing a
forged endorsement should be returned within twenty-four hours.
Associated Bank now argues that the aforementioned Central Bank Circular
is applicable. Since PNB did not return the questioned checks within
twenty-four hours, but several days later, Associated Bank alleges that PNB
should be considered negligent and not entitled to reimbursement of the
amount it paid on the checks.

finds this contention unmeritorious. Even if PNB cleared and paid the
checks, it can still recover from Associated Bank. This is true even if the
payee's Chief Officer who was supposed to have indorsed the checks is
also a customer of the drawee bank. 39 PNB's duty was to verify the
genuineness of the drawer's signature and not the genuineness of payee's
indorsement. Associated Bank, as the collecting bank, is the entity with the
duty to verify the genuineness of the payee's indorsement.

The Court deems it unnecessary to discuss Associated Bank's assertions

that CB Circular No. 580 is an administrative regulation issued pursuant to
law and as such, must prevail over the PCHC rule. The Central Bank circular
was in force for all banks until June 1980 when the Philippine Clearing
House Corporation (PCHC) was set up and commenced operations. Banks
in Metro Manila were covered by the PCHC while banks located elsewhere
still had to go through Central Bank Clearing. In any event, the twenty-fourhour return rule was adopted by the PCHC until it was changed in 1982.
The contending banks herein, which are both branches in Tarlac province,
are therefore not covered by PCHC Rules but by CB Circular No. 580.
Clearly then, the CB circular was applicable when the forgery of the checks
was discovered in 1981.

PNB also avers that respondent court erred in adjudging circuitous liability
by directing PNB to return to the Province of Tarlac the amount of the
checks and then directing Associated Bank to reimburse PNB. The Court
finds nothing wrong with the mode of the award. The drawer, Province of
Tarlac, is a clientor customer of the PNB, not of Associated Bank. There is
no privity of contract between the drawer and the collecting bank.

The rule mandates that the checks be returned within twenty-four hours
after discovery of the forgery but in no event beyond the period fixed by
law for filing a legal action. The rationale of the rule is to give the collecting
bank (which indorsed the check) adequate opportunity to proceed against
the forger. If prompt notice is not given, the collecting bank maybe
prejudiced and lose the opportunity to go after its depositor.
The Court finds that even if PNB did not return the questioned checks to
Associated Bank within twenty-four hours, as mandated by the rule, PNB
did not commit negligent delay. Under the circumstances, PNB gave
prompt notice to Associated Bank and the latter bank was not prejudiced in
going after Fausto Pangilinan. After the Province of Tarlac informed PNB of
the forgeries, PNB necessarily had to inspect the checks and conduct its
own investigation. Thereafter, it requested the Provincial Treasurer's office
on March 31, 1981 to return the checks for verification. The Province of
Tarlac returned the checks only on April 22, 1981. Two days later,
Associated Bank received the checks from PNB. 36
Associated Bank was also furnished a copy of the Province's letter of
demand to PNB dated March 20, 1981, thus giving it notice of the forgeries.
At this time, however, Pangilinan's account with Associated had only
P24.63 in it. 37 Had Associated Bank decided to debit Pangilinan's account,
it could not have recovered the amounts paid on the questioned checks. In
addition, while Associated Bank filed a fourth-party complaint against
Fausto Pangilinan, it did not present evidence against Pangilinan and even
presented him as its rebuttal witness. 38 Hence, Associated Bank was not
prejudiced by PNB's failure to comply with the twenty-four-hour return rule.
Next, Associated Bank contends that PNB is estopped from requiring
reimbursement because the latter paid and cleared the checks. The Court

The trial court made PNB and Associated Bank liable with legal interest
from March 20, 1981, the date of extrajudicial demand made by the
Province of Tarlac on PNB. The payments to be made in this case stem from
the deposits of the Province of Tarlac in its current account with the PNB.
Bank deposits are considered under the law as loans. 40 Central Bank
Circular No. 416 prescribes a twelve percent (12%) interest per annum for
loans, forebearance of money, goods or credits in the absence of express
stipulation. Normally, current accounts are likewise interest-bearing, by
express contract, thus excluding them from the coverage of CB Circular No.
416. In this case, however, the actual interest rate, if any, for the current
account opened by the Province of Tarlac with PNB was not given in
evidence. Hence, the Court deems it wise to affirm the trial court's use of
the legal interest rate, or six percent (6%) per annum. The interest rate
shall be computed from the date of default, or the date of judicial or
extrajudicial demand. 41 The trial court did not err in granting legal
interest from March 20, 1981, the date of extrajudicial demand.
The Court finds as reasonable, the proportionate sharing of fifty percent fifty percent (50%-50%). Due to the negligence of the Province of Tarlac in
releasing the checks to an unauthorized person (Fausto Pangilinan), in
allowing the retired hospital cashier to receive the checks for the payee
hospital for a period close to three years and in not properly ascertaining
why the retired hospital cashier was collecting checks for the payee
hospital in addition to the hospital's real cashier, respondent Province
contributed to the loss amounting to P203,300.00 and shall be liable to the
PNB for fifty (50%) percent thereof. In effect, the Province of Tarlac can only
recover fifty percent (50%) of P203,300.00 from PNB.
The collecting bank, Associated Bank, shall be liable to PNB for fifty (50%)
percent of P203,300.00. It is liable on its warranties as indorser of the
checks which were deposited by Fausto Pangilinan, having guaranteed the
genuineness of all prior indorsements, including that of the chief of the
payee hospital, Dr. Adena Canlas. Associated Bank was also remiss in its
duty to ascertain the genuineness of the payee's indorsement.

IN VIEW OF THE FOREGOING, the petition for review filed by the Philippine
National Bank (G.R. No. 107612) is hereby PARTIALLY GRANTED. The
petition for review filed by the Associated Bank (G.R. No. 107382) is hereby
DENIED. The decision of the trial court is MODIFIED. The Philippine National
Bank shall pay fifty percent (50%) of P203,300.00 to the Province of Tarlac,
with legal interest from March 20, 1981 until the payment thereof.
Associated Bank shall pay fifty percent (50%) of P203,300.00 to the
Philippine National Bank, likewise, with legal interest from March 20, 1981
until payment is made.
SO ORDERED.

Petitioners version of the case, which was upheld by the trial court, alleges
that the said US$100,000.00 was sent by Hang Lung Bank Ltd. of Hong
Kong on February 7, 1979 through the Pacific Banking Corporation to
respondent banks head office.[2] The remittance was for petitioners own
account and was intended to qualify him as a foreign investor under
Philippine laws. As found by the trial court, it was sent by petitioner himself
prior to his arrival in the Philippines.[3]
When petitioner checked on his money sometime in mid-1985, he found
out that that the dollar deposit was transferred to the Shaw Boulevard
branch of respondent bank and converted to a peso account, which had a
balance of only P1,362.10 as of October 29, 1979. A letter of respondent
bank dated August 9, 1985 stated that petitioners Current Account No. 122009 was opened on February 8, 1979, with an initial deposit of
P729,752.20; a total of P728,390.00 was withdrawn by way of five checks
respectively dated February 13, 19 and 23, 1979 and October 5 and 29,
1979, apparently issued by petitioner in favor of Papercon (Phils.), Inc.,
(hereafter, Papercon) one of the herein private respondents and a business
venture of Tom Pek.[4] Thus, the balance of the account was reduced to
P1,362.10 as of October 29, 1979 and no transactions were made on the
account since.[5] In the same letter, the bank stated that it was no longer
able to locate the microfilm copies of the issued checks, specimen
signature cards, and other records related to the questioned account, since
the account had been inactive for more than five years.
Petitioner insisted that he did not cause the transfer of his money to the
Shaw Boulevard branch of RCBC, as his instructions in the telegraphic
transfer were for the money to be remitted to the RCBC head office in
Makati, nor its conversion to pesos and the subsequent withdrawals. Nor
did he authorize anyone to perform these acts.

[G.R. No. 137932. March 28, 2001]

CHIANG YIA MIN, petitioner, vs. COURT OF APPEALS, RIZAL
COMMERCIAL BANKING CORPORATION, PAPERCON (PHILIPPINES),
INC. and TOM PEK, respondents.
DECISION
GONZAGA-REYES, J.:
The instant petition concerns the recovery of a sum of money and
damages, initiated by herein petitioner, a Chinese national based in
Taiwan, against Rizal Commercial Banking Corporation (hereafter, RCBC or
respondent bank) before Branch 151[1] of the Regional Trial Court of Pasig
City. The case, docketed as Civil Case No. 54694, sought the collection of
US$100,000.00, or its equivalent per Central Bank rates, legal interest,
moral and exemplary damages, and attorneys fees.

In its Answer, respondent bank alleged that there is no indication from its
records of the transfer of US$100,000.00 for petitioners account from Hang
Lung Bank Ltd. through the Pacific Banking Corporation. However, after
plaintiff-petitioner had adduced his evidence, it filed a third-party
complaint against Papercon and Tom Pek, admitting that plaintiff
conclusively appeared to have deposited the sum of US$100,000.00 with
the bank and said foreign currency deposit was converted, adopting the
prevailing rate of interest at the time, to P730,000.00 and deposited to
plaintiffs Current Account No. 12-2009 which he opened with Shaw
Boulevard branch, after which plaintiff issued Check No. 492327 to thirdparty defendant Papercon (Phils.), Inc. for the amount of P700,000.00 and
Check No. 492328 to third-party defendant Tom Pek for the amount of
P12,700.00.[6] Respondent bank thus contended that should it be made
liable to petitioner, said third-party defendants as payees and beneficiaries
of the issued checks should be held solidarily liable with it.
Tom Pek and Papercon did not deny receiving the checks worth
P712,700.00 but argued that unless proven otherwise, the said checks
should be presumed to have been issued in their favor for a sufficient and
valuable consideration.

3) P20,000.00 as exemplary damages; and

Based on the evidence and arguments before it, the trial court determined
that the withdrawals were not made by petitioner nor authorized by him,
and held respondent bank liable for the US$100,000.00 (and the interest
thereon from date of filing of the complaint), damages, attorneys fees, and
costs.
It is not disputed that petitioner did not personally go to respondent bank
to open the account; it was Catalino Reyes, an employee of Tom Pek, who
obtained the blank application forms from the Shaw Boulevard branch and
returned them bearing petitioners signature; and, the application forms
were not completely filled out. The trial court found the actuations of the
banks officers of allowing Reyes to take out the forms, approving the
scarcely-completed application form, validating petitioners signature
thereon even when they have not met petitioner, and permitting the hefty
withdrawals made from the account to be in contravention with sound and
well-recognized banking procedures, and contrary to its (the banks)
primordial duty of safeguarding the interest of its depositors, because for
having allowed the same, it enabled an unscrupulous person to open an
account for the plaintiff without the latters consent.[7]
The trial court also took against respondent bank its inability to present in
evidence the depositors card showing petitioners specimen signatures and
the requisition slip for the issuance of a checkbook, and disregarded the
banks contention that they could not anymore be located. From this, the
trial court concluded that petitioner did not submit any card showing his
specimen signature since he did not open the said current account, and
that the withdrawals made on the said account were unauthorized and in
fraud of petitioner.[8]
The trial court further concluded that the withdrawals from petitioners
account could not have been made possible without the collusion of the
officers and employees of respondent bank. In its decision dated May 24,
1991, it held respondent bank solely culpable and fully exonerated the
other private respondents. It also upheld petitioners claims for moral
damages, for the mental anguish that he suffered, and exemplary
damages, to remind respondent bank "that it should always act with care
and caution in handling the money of its depositors in order to uphold the
faith and confidence of its depositors to banking institutions xxx".[9] Thus,
the dispositive part of the said decision read:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendant and third-party plaintiff, Rizal Commercial Banking Corporation,
ordering the latter to pay plaintiff the following sums:

4) 20% of the total amount due to the plaintiff as attorneys fees and
litigation expenses, all three foregoing items with interest at 12% per
annum from date hereof.
The defendant
dismissed.

banks

counterclaims

and

third-party

complaint

are

The third-party defendants counterclaims are likewise dismissed.

Costs against defendant.
SO ORDERED.[10]
Respondent bank and third-party defendants sought reconsideration of the
above decision and on September 2, 1991, Judge Migrio amended his
decision to hold Papercon and Tom Pek solidarily liable with respondent
bank. He also changed the interest rate for the US$100,000 from 12% to
6% per annum, charged interest for the awards of moral damages and
exemplary damages until they are paid, and reduced the award of
attorneys fees from 20% to 10% of the total monetary awards. Following is
the dispositive portion of the RTC decision, as modified:
WHEREFORE, judgment is hereby rendered:
On the Main Action
1. Ordering the defendant Rizal Commercial Banking Corporation to pay
the plaintiff Chiang Yia Min the following sums:
a) US$100,000.00, or its equivalent in Philippine currency at the time of
actual payment, with interest thereon at the legal rate of 6% per annum
from June 26, 1987, the date of filing of the complaint, until fully paid;
b) P30,000.00 as moral damages;
c) P20,000.00 as exemplary damages;
d) 10% of the total amount due for and as attorneys fees, all three
foregoing items with interest at 6% per annum from date hereof; and
e) the costs of the suit.
On the Third-Party Complaint

1) US$100,000.00, or its equivalent according to Central Bank rate at the

time payment is actually made with interest thereon at 12% per annum
from June 26, 1987, when the complaint was filed, until fully paid;
2) P30,000.00 as moral damages;

Judgment is hereby rendered in favor of the defendant-third-party plaintiff

and against third-party defendants, ordering the latter, jointly and
severally, to pay and reimburse the third-party plaintiff the aforeadjudged
amounts which it is ordered to pay to the plaintiff in accordance with this
decision.

The defendant banks counterclaims are hereby dismissed.

The counterclaims of the third-party defendants are likewise dismissed.
SO ORDERED.[11]
The Court of Appeals, on the other hand, found that the opening of the
current account and the withdrawals therefrom were authorized by
petitioner; accordingly, it reversed the decision of the RTC and absolved
private respondents of liability.
Respondent court gave credence to the statements of Catalino Reyes, an
accountant of Pioneer Business Forms, Inc., another business venture of
Tom Pek, who testified that petitioner and Tom Pek were close friends and
business partners. Sometime in January or February 1979 Reyes was
instructed by petitioner to withdraw the US$100,000.00 from Pacific
Banking Corporation and to deposit the peso equivalent of the same in the
Shaw Boulevard branch of RCBC. These were undertaken to facilitate
petitioners change of visa from tourist to foreign investor. Respondent
court also accepted Reyess testimony that he was instructed by petitioner
to prepare two of the checks drawn against the questioned account, and
that he witnessed petitioner sign these checks and hand them over to Tom
Pek. It declared that Reyess testimony that petitioner caused the opening
of the said account was more believable than petitioners mere denial of
the same.[12] Moreover, Reyess testimony was supported by a
memorandum of the Board of Special Inquiry, Bureau of Immigration which
stated that the peso equivalent of the US$100,000.00 had been tendered
and delivered to applicant Chiang Yia Min as evidenced by a cashiers check
dated February 8, 1979 and issued to the latter.[13] According to the Court
of Appeals, this coincides with Catalino Reyess testimony that petitioners
money was deposited by him in respondent bank, and was contrary to
petitioners contention that the money was transferred by Pacific Banking
Corporation to respondent bank through a bank-to-bank transaction.
Respondent court was also not convinced by petitioners allegation that the
conversion of the US$100,000.00 and its being deposited in the Shaw
Boulevard branch of respondent bank was made without his knowledge
and consent. It pointed out that it was petitioner himself who wrote the
Shaw Boulevard branch inquiring about the status of his current account;
thus, he could not later be heard to maintain that he thought his money
was deposited with the head office of respondent bank in Makati.
Further contrary to the findings of the trial court, the Court of Appeals
determined that the inward remittance of US$100,000.00 was made while
petitioner was already in the Philippines. Based on the records of the
Bureau of Immigration, petitioner arrived in the country as a tourist on or
about January 25, 1979,[14] but subsequently applied for a change of
status of admission to special non-immigrant as a foreign investor.[15]
Because of this, petitioners initial argument --- that he could not have
authorized the deposit in the Shaw Boulevard branch and the withdrawals

therefrom because he was not yet in the country at the time --- could not
be believed.
Moreover, respondent court found it incredible that petitioner checked on
his dollar remittance only in 1985, long after it was sent into the country.
As for respondent banks inability to produce the depositors card bearing
petitioners specimen signatures, the checkbook requisition slip, and other
documents requested by petitioner, respondent court found plausible the
explanation of respondent bank that it only holds records for a period of
five years after the last transaction on an account was made. It also noted
several other inconsistencies in the testimony of petitioner, such as his
inability to recall his date of arrival in the country,[16] the date or even the
year when he made inquiries with respondent bank,[17] or his presence
before the Commission on Immigration and Deportation when he applied
for a change of status.[18] Thus, petitioner lost credibility with respondent
court which found his testimony to be false on material points and applied
the principle of falsus in uno, falsus in omnibus.
Hence, the dispositive portion of the Court of Appeals decision provides:
WHEREFORE, premises considered, the decision of the court a quo is
hereby REVERSED and SET ASIDE. Herein defendant/third-party plaintiff
and third-party defendants are hereby absolved of any liability arising out
of this case. Likewise, the third-party complaint is hereby DISMISSED.
Costs against plaintiff-appellant.
SO ORDERED.[19]
Petitioner is now before us seeking the reversal of the above decision,
maintaining that the evidence on record preponderated in his favor and
was enough to sustain the finding that the opening of Current Account No.
12-2009 and the withdrawals thereon were unauthorized by him and that
respondent bank connived with third persons to defraud petitioner. Private
respondents, for their part, ask that the petition be dismissed and the
factual findings of the Court of Appeals be sustained.
The grounds set out in the petition are:
1. The findings of facts of the trial court and the Court of Appeals are
conflicting hence, an examination by this Honorable Court of the evidence
on record is in order. There is an imperative need for this Honorable Court
to exercise its power of supervision and review of the questioned decision
of the Court of Appeals as an exception to the rule (Solidbank vs. Court of
Appeals, G.R. No. 91494, July 14, 1995) because the Court of Appeals for
no plausible reason at all had completely substituted its findings of fact in
place of the well-founded findings of fact made by the trial court. It is a
serious departure from the well-accepted rules of procedure.

2. There is preponderance of evidence to show that respondent bank

connived with third persons to defraud petitioner, hence, it should be held
liable for reimbursement with interest and damages.
3. The application of the maxim falsus in uno, falsus in omnibus by the
Honorable Court of Appeals is not in accord with law and the applicable
decisions of the Supreme Court. The Honorable Court of Appeals has so far
departed from the accepted principles in the exercise of judicial discretion
as to call for an exercise of the power of review and supervision of this
Honorable Court.[20]
Settled is the rule that where the factual findings of the Court of Appeals
and the trial court are at variance this Court will review the evidence on
record in order to arrive at the correct findings.[21] Our evaluation of the
numerous testimonies and documentary evidence persuades us that the
findings of the Court of Appeals are well-founded and merit the dismissal of
the instant petition.
The determinative issue in this case, as phrased out in the instant petition,
is whether petitioner has proved, by a preponderance of the evidence, that
respondent bank connived with private respondents and third party
defendants Papercon and Tom Pek in allowing the withdrawals from Current
Account No. 12-2009, knowing these to be unauthorized by petitioner, and
with the purpose of defrauding him.
A review of the complaint filed before the RTC, however, indicates that
petitioner originally sued upon an allegation of negligence on the part of
respondent banks officers and employees in allowing the said withdrawals.
[22]
Under either theory of fraud or negligence, it is incumbent upon petitioner
to show that the withdrawals were not authorized by him. If he is unable to
do so, his allegations of fraud or negligence are unsubstantiated and the
presumption that he authorized the said withdrawals will apply.
Petitioners allegation that he did not authorize the opening of the current
account and the issuance of the checks was countered by private
respondents by presenting Catalino Reyes as a witness. Reyes, the
accountant of Pioneer Business Forms, Inc., another business venture of
Tom Pek, testified that the opening of Current Account No. 12-2009 and the
issuance of the questioned checks were all upon the instructions of
petitioner. Reyes stated that he first met petitioner in January or February
1979 when the latter was introduced to him by Tom Pek.[23] He and his
fellow employees were advised by Tom Pek to personally help (Chiang Yia
Min) in all his personal accounts.[24] Reyes, in particular, was charged with
working on the incorporation of Philippine Color Scanning, a new business
venture where petitioner will be the general manager.[25] He also assisted
petitioner when the latter applied for a change of visa from tourist to
special non-immigrant. Reyes testified that on the first week of February
1979, petitioner asked him to pick up the US$100,000.00 which he caused
to be remitted in compliance with the capital requirements for foreign

investors at Pacific Banking Corporation.[26] Bringing with him the letter of

advise from the bank, Reyes did as he was told and the bank released to
him a cashiers check representing the peso equivalent of the
US$100,000.00. Reyes then showed the check to petitioner and upon the
latters instructions, he went to the Shaw Boulevard branch of respondent
bank to open a checking account in petitioners name, using the proceeds
of the check as initial deposit.[27]
Reyes describes the opening of the current account as having been done in
haste, since petitioner was in a hurry to have the proceeds of the
remittance credited to his checking account.[28] Because Reyes was wellknown to the officers and employees of RCBC-Shaw Boulevard, he was
allowed to bring out of the bank the application form, depositors card, and
other forms which required petitioners signature as depositor.[29] He then
filled out the forms,[30] and brought them to petitioner for signing. He
witnessed petitioner sign the forms.[31] Then he brought the signed forms,
and petitioners passport, back to the bank, which approved the opening of
the current account upon a comparison of the signatures on the forms and
the passport.[32]
The documentary evidence accurately supports Reyess statements. Pacific
Banking Corporation confirmed receipt of the US$100,000.00 from Hang
Lung Bank, Ltd. by telegraphic transfer on February 7, 1979.[33] It had
instructions to transmit the money to Rizal Commercial Banking
Corporation, Head Office, for (the) account of Chiang Yia Min;[34] however,
the records also show that on February 8, 1979 Pacific Banking Corporation
released the money to petitioner by way of Cashiers Check No. DD 244955,
representing the peso equivalent of the US$100,000.00, which check was
in turn presented before the Board of Special Inquiry of the Bureau of
Immigration as proof of petitioners compliance with the requirements for
change of status from tourist to special non-immigrant, i.e., foreign
investor.[35] On the same day, February 8, 1979, Current Account No. 122009, in the name of Chiang Yia Min, was opened in RCBC-Shaw Boulevard
with an initial deposit of P729,752.20, representing proceeds of inward
remittance received from Pacific Banking Corporation.[36]
As established by the records, there were five issued checks: two made
payable to Papercon, and three made payable to cash (these three checks
were all negotiated to Tom Pek).[37] Catalino Reyes testified that on two
separate instances, petitioner asked him to prepare two of the five checks
questioned in this case, specifically, the check for P700,000.00, dated
February 19, 1979 and payable to Papercon, and the check for P12,700.00,
dated February 23, 1979 and payable to cash.[38] He witnessed petitioner
study the information typed on the checks, sign the checks, and hand them
over to Tom Pek.[39]
The microfilm copies of these checks were submitted in evidence.[40] They
all bear the signature of petitioner.
Confronted with such direct and positive evidence that he authorized the
opening of the account and signed the questioned checks, it is curious that

petitioner did not take the witness stand to refute Reyess testimony. He did
present as his rebuttal witness a teller of Metrobank (in which he also
maintained a checking account) who testified that she had assisted
petitioner in some withdrawals with Metrobank and in these instances it
was petitioner himself, unassisted, who filled out his checks.[41] Thus,
petitioner attempted to show that he prepared his own checks as a matter
of practice. However, we note that the Metrobank teller testified to checks
issued on December 1989, or long after the herein questioned checks were
issued. It would neither be fair nor accurate to compare the practice of
petitioner in issuing checks in 1979, when admittedly he was still
unfamiliar with the English language, with the manner by which he
prepared his checks ten years later.
To our mind, the best witness to counter the testimony of Catalino Reyes
would be petitioner himself, simply because, based on the statements of
Reyes, the only persons present when petitioner allegedly instructed Reyes
to open the account and signed the checks were Reyes, petitioner himself,
and Tom Pek. (Tom Pek died during the course of the proceedings.) Besides,
if indeed Catalino Reyes lied in saying that petitioner instructed the
opening of the account and issued the checks, we cannot imagine a more
natural reaction of petitioner than wanting to set the record right.
Moreover, petitioners signatures on the questioned checks amounts to
prima facie evidence that he issued those checks. By denying that he
issued the said checks it is he who puts into question the genuineness and
authenticity of the signatures appearing thereon, and it is he who has the
burden of proving that those signatures were forgeries.
No shred of evidence was presented by petitioner to show that the
signatures were not his. All that this petition relies on insofar as concerning
the authenticity of the signatures is the finding of the trial court judge that
there was a discrepancy between the signatures on the bank form and
petitioners passport. As stated in the RTC decision:
xxx An examination of the signatures of the plaintiff on the said documents
will, however, show to an ordinary person the discrepancy in the said
signatures. The letter H in Chiang as appearing in the application form is in
script whereas the said letter appearing in his passport is in print.[42]
The Court, however, believes that since what is at issue here is whether
petitioner issued the questioned checks the essential comparison should
be between the signatures appearing on the checks and the specimen
signatures on the depositors card. Such is the normal process followed in
verifying signatures for purposes of bank withdrawals. Considering that the
depositors card was not produced in evidence in the instant case, resort
may thus be made to such other documents as would bear the authentic
signature of petitioner.[43] The record is replete with documents bearing
petitioners signature, among them, his residence certificate[44], alien
certificate of registration[45], investors passport[46], tourists passport[47],
and the application forms for an RCBC current account[48]. From our
examination of these records we find no significant disparity between the

signatures on the checks and those on the abovesaid documents, and will
not risk a finding of forgery where the same had not been clearly alleged
nor proved. Forgery, as any other mechanism of fraud, must be proven
clearly and convincingly, and the burden of proof lies on the party alleging
forgery.[49]
On the other hand, private respondents have presented evidence that
petitioner did sign and issue these checks. The testimony of Catalino Reyes
that petitioner told him to prepare the checks, and that he saw petitioner
sign these checks and give them to Tom Pek, stands unrebutted.
There is thus no evidence to demonstrate that respondent bank and
respondents Papercon and Tom Pek colluded to defraud petitioner of his
money. What the evidence in fact establishes is that the opening of the
account and the withdrawals were authorized by petitioner, and that the
signatures appearing on the questioned checks were petitioners.
Petitioner, however, insists that respondent bank acted with negligence in
opening Current Account No. 12-2009 without properly verifying the
identity of the depositor and in contravention of sound and well-recognized
banking procedures. The petition capitalizes on the following purported
irregularities surrounding the opening of the account: (1) the alleged
depositor never appeared at the bank; (2) the person who transacted for
the alleged depositor was not shown to have been authorized for that
purpose; (3) the application form and other documents required to open
the account were brought out of the bank premises; and (4) the application
form, when submitted, was not properly accomplished, but was left blank
on most of the required details.[50]
The arguments are unmeritorious for failure to show that such irregularities
attending the opening of the account resulted in the unauthorized
withdrawal of petitioners money. The evidence stands unrebutted that
petitioner instructed the opening of the said account and signed the
pertinent application forms. Quite contrary to petitioners insinuations of
fraud or negligence, the evidence indicates that the reason why
respondent bank relaxed its rules in handling petitioners application was
because, in addition to having been referred by a well-known client,[51]
petitioner was in a hurry to have the remittance credited to his account.
[52]
The person who alleges fraud or negligence must prove it, because the
general presumption is that men act with care and prudence. Good faith is
always presumed and it is the burden of the party claiming otherwise to
adduce clear and convincing evidence to the contrary.[53] No judgment for
damages could arise where the source of injury, be it fraud, fault, or
negligence, was not affirmatively established by competent evidence.[54]
Additionally, circumstances may be obtained from the record that cast
serious doubts on the legitimacy of petitioners claims. The Court of
Appeals had correctly taken into consideration petitioners lack of candor in
declaring his status of entry into the Philippines. Petitioners testimony that

he came into the country after February 7, 1979 (the date of remittance of
the US$100,000.00) was exposed in open court as an outright lie,[55] it
being shown that he was admitted into the country as a tourist as early as
January 25, 1979.[56] Thus, there is no truth to petitioners contention that
he could not have authorized the opening of Current Account No. 12-2009
because he was not yet in the country at the time. The fact is, by February
7, 1979, his 7-day visa had already expired (counting from January 25,
1979); he was plainly an overstaying tourist, working against time to
secure an investors visa to legitimize his stay in the Philippines, which
explains the haste by which he ordered the withdrawal of the money from
Pacific Banking Corporation and the opening of the account in RCBC.

same, the presumption lies that they were holders for value and in good
faith.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 35442
is AFFIRMED. Costs against petitioner.
SO ORDERED.

It also strains credulity that an investor like petitioner would allow a

substantial amount of money to lie insipid and unproductive in a bank
account for six years before he bothered to check on it. The earliest known
record of his having gotten in touch with respondent bank to check about
his money was on August 5, 1985, by a letter of his lawyer. The bank
replied on August 9, 1985, stating that the account was inactive since
October, 1979 with a present balance of P1,362.10.[57] Instead of alarm
and indignation at the news that he had lost all his investment money,
petitioner and his lawyer waited until January 27, 1987 when they again
wrote the bank to once more inquire about the status of the current
account. The bank simply reiterated its report, and stated that they can no
longer produce the records of that account since their retention period for
records of inactive accounts is only five years.[58] The complaint was filed
with the RTC only on June 29, 1987, or almost two years after his supposed
discovery of the loss of his money.
Moreover, petitioners claim that he felt no need to check on the
US$100,000.00 because he still had cash at hand was contradicted by his
own testimony that in 1983 and 1984 he could not put up the money to
fund a letter of credit, lost a major client in the process, and was put out of
business.[59] If it was true that the proceeds of the US$100,000.00
remittance were not used up at that time, why did he not check on the
money then?
Besides, the fact that petitioner, through his lawyer, wrote the Shaw
Boulevard branch of respondent bank to inquire about the status of his
current account is fundamentally inconsistent with his position that he had
no knowledge of the opening of the account in that branch. It simply does
not jive with his representation that he thought the money was remitted
directly to the RCBC head office in Makati.
These matters certainly reveal a malicious intention on petitioners part to
conceal material circumstances and pervert the truth, and cast serious
doubt on the legitimacy of his claims.

G.R. No. L-53194

March 14, 1988

PHILIPPINE NATIONAL BANK petitioner,

vs.
HON. ROMULO S. QUIMPO, Presiding Judge, Court of First Instance
of Rizal, Branch XIV, and FRANCISCO S. GOZON II, respondents.
GANCAYCO, J.:

As for respondents and third party defendants Papercon and Tom Pek, upon
the finding that the checks issued to them were in order, and there being
no indication that respondent bank colluded in paying the checks to them
for any unlawful cause, or was otherwise deceived or misled into doing the

On July 3, 1973, Francisco S. Gozon II, who was a depositor of the Caloocan
City Branch of the Philippine National Bank, went to the bank in his car
accompanied by his friend Ernesto Santos whom he left in the car while he

transacted business in the bank. When Santos saw that Gozon left his
check book he took a check therefrom, filled it up for the amount of
P5,000.00, forged the signature of Gozon, and thereafter he encashed the
check in the bank on the same day. The account of Gozon was debited the
said amount. Upon receipt of the statement of account from the bank,
Gozon asked that the said amount of P5,000.00 should be returned to his
account as his signature on the check was forged but the bank refused.
Upon complaint of private respondent on February 1, 1974 Ernesto Santos
was apprehended by the police authorities and upon investigation he
admitted that he stole the check of Gozon, forged his signature and
encashed the same with the Bank.
Hence Gozon filed the complaint for recovery of the amount of P5,000.00,
plus interest, damages, attorney's fees and costs against the bank in the
Court of First Instance of Rizal. After the issues were joined and the trial on
the merits ensued, a decision was rendered on February 4, 1980, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff. The
defendant is hereby condemned to return to plaintiff the amount of
P5,000.00 which it had unlawfully withheld from the latter, with interest at
the legal rate from September 22, 1972 until the amount is fully delivered.
The defendant is further condemned to pay plaintiff the sum of P2,000.00
as attorney's fees and to pay the costs of this suit.
Not satisfied therewith, the bank now filed this petition for review on
certiorari in this Court raising the sole legal issue that
THE ACT OF RESPONDENT FRANCISCO GOZON, II IN PUTTING HIS CHECK
BOOK CONTAINING THE CHECK IN QUESTION INTO THE HANDS OF
ERNESTO SANTOS WAS INDEED THE PROXIMATE CAUSE OF THE LOSS,
THEREBY PRECLUDING HIM FROM SETTING UP THE DEFENSE OF FORGERY
OR WANT 0F AUTHORITY UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW, ACT NO. 3201
The petition is devoid of merit.
This Court reproduces with approval the disquisition of the court a quo as
follows:
A bank is bound to know the signatures of its customers; and if it pays a
forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily change the amount so paid to the account of
the depositor whose name was forged' (San Carlos Milling Co. vs. Bank of
the P.I., 59 Phil. 59).
This rule is absolutely necessary to the circulation of drafts and checks,
and is based upon the presumed negligence of the drawee in failing to
meet its obligation to know the signature of its correspondent. ... There is
nothing inequitable in such a rule. If the paper comes to the drawee in the

regular course of business, and he, having the opportunity ascertaining its
character, pronounces it to be valid and pays it, it is not only a question of
payment under mistake, but payment in neglect of duty which the
commercial law places upon him, and the result of his negligence must rest
upon him (12 ALR 1901, citing many cases found in I Agbayani, supra).
Defendant, however, interposed the defense that it exercised diligence in
accordance with the accepted norms of banking practice when it accepted
and paid Exhibit "A". It presented evidence that the check had to pass
scrutiny by a signature verifier as well as an officer of the bank.
A comparison of the signature (Exhibit "A-l") on the forged check (Exhibit
"A") with plaintiffs exemplar signatures (Exhibits "5-N" and "5-B") found in
the PNB Form 35-A would immediately show the negligence of the
employees of the defendant bank. Even a not too careful comparison
would immediately arrest one's attention and direct it to the graceful lines
of plaintiffs exemplar signatures found in Exhibits "5-A" and "5-B". The
formation of the first letter "F" in the exemplars, which could be regarded
as artistic, is completely different from the way the same letter is formed in
Exhibit "A-l". That alone should have alerted a more careful and prudent
signature verifier.
The prime duty of a bank is to ascertain the genuineness of the signature
of the drawer or the depositor on the check being encashed. 1 It is
expected to use reasonable business prudence in accepting and cashing a
check presented to it.
In this case the findings of facts of the court a quo are conclusive. The trial
court found that a comparison of the signature on the forged check and the
sample signatures of private respondent show marked differences as the
graceful lines in the sample signature which is completely different from
those of the signature on the forged check. Indeed the NBI handwriting
expert Estelita Santiago Agnes whom the trial court considered to be an
"unbiased scientific expert" indicated the marked differences between the
signature of private respondent on the sample signatures and the
questioned signature. Notwithstanding the testimony of Col. Fernandez,
witness for petitioner, advancing the opinion that the questioned signature
appears to be genuine, the trial court by merely examining the pictorial
report presented by said witness, found a marked difference in the second
"c" in Francisco as written on the questioned signature as compared to the
sample signatures, and the separation between the "s" and the "c" in the
questioned signature while they are connected in the sample signatures. 2
Obviously, petitioner was negligent in encashing said forged check without
carefully examining the signature which shows marked variation from the
genuine signature of private respondent.
In reference to the allegation of the petitioner that it is the negligence of
private respondent that is the cause of the loss which he suffered, the trial
court held:

The act of plaintiff in leaving his checkbook in the car while he went out for
a short while can not be considered negligence sufficient to excuse the
defendant bank from its own negligence. It should be home in mind that
when defendant left his car, Ernesto Santos, a long time classmate and
friend remained in the same. Defendant could not have been expected to
know that the said Ernesto Santos would remove a check from his
checkbook. Defendant had trust in his classmate and friend. He had no
reason to suspect that the latter would breach that trust .
We agree.
Private respondent trustee Ernesto Santos as a classmate and a friend. He
brought him along in his car to the bank and he left his personal
belongings in the car. Santos however removed and stole a check from his
cheek book without the knowledge and consent of private respondent. No
doubt private respondent cannot be considered negligent under the
circumstances of the case.
WHEREFORE, the petition is DISMISSED for lack of merit with costs against
petitioner.
SO ORDERED.

G.R. No. L-40796

July 31, 1975

REPUBLIC BANK, plaintiff-appellee,

vs.
MAURICIA T. EBRADA, defendant-appellant.
MARTIN, J.:
Appeal on a question of law of the decision of the Court of First Instance of
Manila, Branch XXIII in Civil Case No. 69288, entitled "Republic Bank vs.
Mauricia T. Ebrada."
On or about February 27, 1963 defendant Mauricia T. Ebrada, encashed
Back Pay Check No. 508060 dated January 15, 1963 for P1,246.08 at the
main office of the plaintiff Republic Bank at Escolta, Manila. The check was
issued by the Bureau of Treasury. 1 Plaintiff Bank was later advised by the
said bureau that the alleged indorsement on the reverse side of the
aforesaid check by the payee, "Martin Lorenzo" was a forgery 2 since the
latter had allegedly died as of July 14, 1952. 3 Plaintiff Bank was then
requested by the Bureau of Treasury to refund the amount of P1,246.08. 4
To recover what it had refunded to the Bureau of Treasury, plaintiff Bank
made verbal and formal demands upon defendant Ebrada to account for
the sum of P1,246.08, but said defendant refused to do so. So plaintiff
Bank sued defendant Ebrada before the City Court of Manila.
On July 11, 1966, defendant Ebrada filed her answer denying the material
allegations of the complaint and as affirmative defenses alleged that she
was a holder in due course of the check in question, or at the very least,
has acquired her rights from a holder in due course and therefore entitled
to the proceeds thereof. She also alleged that the plaintiff Bank has no
cause of action against her; that it is in estoppel, or so negligent as not to
be entitled to recover anything from her. 5
About the same day, July 11, 1966 defendant Ebrada filed a Third-Party
complaint against Adelaida Dominguez who, in turn, filed on September 14,
1966 a Fourth-Party complaint against Justina Tinio.
On March 21, 1967, the City Court of Manila rendered judgment for the
plaintiff Bank against defendant Ebrada; for Third-Party plaintiff against
Third-Party defendant, Adelaida Dominguez, and for Fourth-Party plaintiff
against Fourth-Party defendant, Justina Tinio.
From the judgment of the City Court, defendant Ebrada took an appeal to
the Court of First Instance of Manila where the parties submitted a partial
stipulation of facts as follows:
COME NOW the undersigned counsel for the plaintiff, defendant, ThirdParty defendant and Fourth-Party plaintiff and unto this Honorable Court
most respectfully submit the following:
PARTIAL STIPULATION OF FACTS
1.

That they admit their respective capacities to sue and be sued;

2.
That on January 15, 1963 the Treasury of the Philippines issued its
Check No. BP-508060, payable to the order of one MARTIN LORENZO, in the
sum of P1,246.08, and drawn on the Republic Bank, plaintiff herein, which
check will be marked as Exhibit "A" for the plaintiff;
3.
That the back side of aforementioned check bears the following
signatures, in this order:
1)

MARTIN LORENZO;

2)

RAMON R. LORENZO;

3)

DELIA DOMINGUEZ; and

4)

MAURICIA T. EBRADA;

4. That the aforementioned check was delivered to the defendant

MAURICIA T. EBRADA by the Third-Party defendant and Fourth-Party plaintiff
ADELAIDA DOMINGUEZ, for the purpose of encashment;
5.
That the signature of defendant MAURICIA T. EBRADA was affixed
on said check on February 27, 1963 when she encashed it with the plaintiff
Bank;
6.
That immediately after defendant MAURICIA T. EBRADA received
the cash proceeds of said check in the sum of P1,246.08 from the plaintiff
Bank, she immediately turned over the said amount to the third-party
defendant and fourth-party plaintiff ADELAIDA DOMINGUEZ, who in turn
handed the said amount to the fourth-party defendant JUSTINA TINIO on
the same date, as evidenced by the receipt signed by her which will be
marked as Exhibit "1-Dominguez"; and
7.
That the parties hereto reserve the right to present evidence on
any other fact not covered by the foregoing stipulations,
Manila, Philippines, June 6, 1969.
Based on the foregoing stipulation of facts and the documentary evidence
presented, the trial court rendered a decision, the dispositive portion of
which reads as follows:
WHEREFORE, the Court renders judgment ordering the defendant Mauricia
T. Ebrada to pay the plaintiff the amount of ONE THOUSAND TWO FORTYSIX 08/100 (P1,246.08), with interest at the legal rate from the filing of the
complaint on June 16, 1966, until fully paid, plus the costs in both
instances against Mauricia T. Ebrada.
The right of Mauricia T. Ebrada to file whatever claim she may have against
Adelaida Dominguez in connection with this case is hereby reserved. The

right of the estate of Dominguez to file the fourth-party complaint against

Justina Tinio is also reserved.

against whom it is sought to enforce such right is precluded from setting

up the forgery or want of authority.

SO ORDERED.

It is clear from the provision that where the signature on a negotiable

instrument if forged, the negotiation of the check is without force or effect.
But does this mean that the existence of one forged signature therein will
render void all the other negotiations of the check with respect to the other
parties whose signature are genuine?

In her appeal, defendant-appellant presses that the lower court erred:

IN ORDERING THE APPELLANT TO PAY THE APPELLEE THE FACE VALUE OF
THE SUBJECT CHECK AFTER FINDING THAT THE DRAWER ISSUED THE
SUBJECT CHECK TO A PERSON ALREADY DECEASED FOR 11- YEARS AND
THAT THE APPELLANT DID NOT BENEFIT FROM ENCASHING SAID CHECK.
From the stipulation of facts it is admitted that the check in question was
delivered to defendant-appellant by Adelaida Dominguez for the purpose of
encashment and that her signature was affixed on said check when she
cashed it with the plaintiff Bank. Likewise it is admitted that defendantappellant was the last indorser of the said check. As such indorser, she was
supposed to have warranted that she has good title to said check; for
under Section 65 of the Negotiable Instruments Law: 6
Every person negotiating an instrument by delivery or by qualified
indorsement, warrants:
(a)
to be.

That the instrument is genuine and in all respects what it purports

(b)

That she has good title to it.

xxx

xxx

xxx

and under Section 65 of the same Act:

Every indorser who indorses without
subsequent holders in due course:

qualification

warrants

to

all

(a)
The matters and things mentioned in subdivisions (a), (b), and (c)
of the next preceding sections;
(b)
That the instrument is at the time of his indorsement valid and
subsisting.
It turned out, however, that the signature of the original payee of the
check, Martin Lorenzo was a forgery because he was already dead 7 almost
11 years before the check in question was issued by the Bureau of
Treasury. Under action 23 of the Negotiable Instruments Law (Act 2031):
When a signature is forged or made without the authority of the person
whose signature it purports to be, it is wholly inoperative, and no right to
retain the instruments, or to give a discharge thereof against any party
thereto, can be acquired through or under such signature unless the party

In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, where a check
has several indorsements on it, it was held that it is only the negotiation
based on the forged or unauthorized signature which is inoperative.
Applying this principle to the case before Us, it can be safely concluded
that it is only the negotiation predicated on the forged indorsement that
should be declared inoperative. This means that the negotiation of the
check in question from Martin Lorenzo, the original payee, to Ramon R.
Lorenzo, the second indorser, should be declared of no affect, but the
negotiation of the aforesaid check from Ramon R. Lorenzo to Adelaida
Dominguez, the third indorser, and from Adelaida Dominguez to the
defendant-appellant who did not know of the forgery, should be considered
valid and enforceable, barring any claim of forgery.
What happens then, if, after the drawee bank has paid the amount of the
check to the holder thereof, it was discovered that the signature of the
payee was forged? Can the drawee bank recover from the one who
encashed the check?
In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it was held
that the drawee of a check can recover from the holder the money paid to
him on a forged instrument. It is not supposed to be its duty to ascertain
whether the signatures of the payee or indorsers are genuine or not. This is
because the indorser is supposed to warrant to the drawee that the
signatures of the payee and previous indorsers are genuine, warranty not
extending only to holders in due course. One who purchases a check or
draft is bound to satisfy himself that the paper is genuine and that by
indorsing it or presenting it for payment or putting it into circulation before
presentation he impliedly asserts that he has performed his duty and the
drawee who has paid the forged check, without actual negligence on his
part, may recover the money paid from such negligent purchasers. In such
cases the recovery is permitted because although the drawee was in a way
negligent in failing to detect the forgery, yet if the encasher of the check
had performed his duty, the forgery would in all probability, have been
detected and the fraud defeated. The reason for allowing the drawee bank
to recover from the encasher is:
Every one with even the least experience in business knows that no
business man would accept a check in exchange for money or goods
unless he is satisfied that the check is genuine. He accepts it only because
he has proof that it is genuine, or because he has sufficient confidence in
the honesty and financial responsibility of the person who vouches for it. If
he is deceived he has suffered a loss of his cash or goods through his own

mistake. His own credulity or recklessness, or misplaced confidence was

the sole cause of the loss. Why should he be permitted to shift the loss due
to his own fault in assuming the risk, upon the drawee, simply because of
the accidental circumstance that the drawee afterwards failed to detect the
forgery when the check was presented? 8
Similarly, in the case before Us, the defendant-appellant, upon receiving
the check in question from Adelaida Dominguez, was duty-bound to
ascertain whether the check in question was genuine before presenting it
to plaintiff Bank for payment. Her failure to do so makes her liable for the
loss and the plaintiff Bank may recover from her the money she received
for the check. As reasoned out above, had she performed the duty of
ascertaining the genuineness of the check, in all probability the forgery
would have been detected and the fraud defeated.
In our jurisdiction We have a case of similar import. 9 The Great Eastern
Life Insurance Company drew its check for P2000.00 on the Hongkong and
Shanghai Banking Corporation payable to the order of Lazaro Melicor. A
certain E. M. Maasin fraudulently obtained the check and forged the
signature of Melicor, as an indorser, and then personally indorsed and
presented the check to the Philippine National Bank where the amount of
the check was placed to his (Maasin's) credit. On the next day, the
Philippine National Bank indorsed the cheek to the Hongkong and Shanghai
Banking Corporation which paid it and charged the amount of the check to
the insurance company. The Court held that the Hongkong and Shanghai
Banking Corporation was liable to the insurance company for the amount
of the check and that the Philippine National Bank was in turn liable to the
Hongkong and Shanghai Banking Corporation. Said the Court:
Where a check is drawn payable to the order of one person and is
presented to a bank by another and purports upon its face to have been
duly indorsed by the payee of the check, it is the duty of the bank to know
that the check was duly indorsed by the original payee, and where the
bank pays the amount of the check to a third person, who has forged the
signature of the payee, the loss falls upon the bank who cashed the check,
and its only remedy is against the person to whom it paid the money.
With the foregoing doctrine We are to concede that the plaintiff Bank
should suffer the loss when it paid the amount of the check in question to
defendant-appellant, but it has the remedy to recover from the latter the
amount it paid to her. Although the defendant-appellant to whom the
plaintiff Bank paid the check was not proven to be the author of the
supposed forgery, yet as last indorser of the check, she has warranted that
she has good title to it 10 even if in fact she did not have it because the
payee of the check was already dead 11 years before the check was
issued. The fact that immediately after receiving title cash proceeds of the
check in question in the amount of P1,246.08 from the plaintiff Bank,
defendant-appellant immediately turned over said amount to Adelaida
Dominguez (Third-Party defendant and the Fourth-Party plaintiff) who in
turn handed the amount to Justina Tinio on the same date would not
exempt her from liability because by doing so, she acted as an

accommodation party in the check for which she is also liable under
Section 29 of the Negotiable Instruments Law (Act 2031), thus: .An
accommodation party is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the
purpose of lending his name to some other person. Such a person is liable
on the instrument to a holder for value, notwithstanding such holder at the
time of taking the instrument knew him to be only an accommodation
party.
IN VIEW OF THE FOREGOING, the judgment appealed from is hereby
affirmed in toto with costs against defendant-appellant.
SO ORDERED.

subsequently, or on January 31, 1962, upon demand from the GSIS, said
sum of P57,415.00 was re-credited to the latter's account, for the reason
that the signatures of its officers on the check were forged; and that,
thereupon, or on February 2, 1962, the PNB demanded from the PCIB the
refund of said sum, which the PCIB refused to do. Hence, the present action
against the PCIB, which was dismissed by the Court of First Instance of
Manila, whose decision was, in turn, affirmed by the Court of Appeals.
It is not disputed that the signatures of the General Manager and the
Auditor of the GSIS on the check, as drawer thereof, are forged; that the
person named in the check as its payee was one Mariano D. Pulido, who
purportedly indorsed it to one Manuel Go; that the check purports to have
been indorsed by Manuel Go to Augusto Lim, who, in turn, deposited it with
the PCIB, on January 15, 1962; that, thereupon, the PCIB stamped the
following on the back of the check: "All prior indorsements and/or Lack of
Endorsement Guaranteed, Philippine Commercial and Industrial Bank,"
Padre Faura Branch, Manila; that, on the same date, the PCIB sent the
check to the PNB, for clearance, through the Central Bank; and that, over
two (2) months before, or on November 13, 1961, the GSIS had notified the
PNB, which acknowledged receipt of the notice, that said check had been
lost, and, accordingly, requested that its payment be stopped.

G.R. No. L-26001

October 29, 1968

PHILIPPINE NATIONAL BANK, petitioner,

vs.
THE COURT OF APPEALS and PHILIPPINE
INDUSTRIAL BANK, respondents.

COMMERCIAL

AND

In its brief, the PNB maintains that the lower court erred: (1) in not finding
the PCIB guilty of negligence; (2) in not finding that the indorsements at
the back of the check are forged; (3) in not finding the PCIB liable to the
PNB by virtue of the former's warranty on the back of the check; (4) in not
holding that "clearing" is not "acceptance", in contemplation of the
Negotiable Instruments law; (5) in not finding that, since the check had not
been accepted by the PNB, the latter is entitled to reimbursement therefor;
and (6) in denying the PNB's right to recover from the PCIB.

Tomas Besa, Jose B. Galang and Juan C. Jimenez for petitioner.

San Juan, Africa & Benedicto for respondents.

The first assignment of error will be discussed later, together with the
last,with which it is interrelated.

CONCEPCION, C.J.:

As regards the second assignment of error, the PNB argues that, since the
signatures of the drawer are forged, so must the signatures of the
supposed indorsers be; but this conclusion does not necessarily follow from
said premise. Besides, there is absolutely no evidence, and the PNB has
not even tried to prove that the aforementioned indorsements are
spurious. Again, the PNB refunded the amount of the check to the GSIS, on
account of the forgery in the signatures, not of the indorsers or supposed
indorsers, but of the officers of the GSIS as drawer of the instrument. In
other words, the question whether or not the indorsements have been
falsified is immaterial to the PNB's liability as a drawee, or to its right to
recover from the PCIB,1 for, as against the drawee, the indorsement of an
intermediate bank does not guarantee the signature of the drawer,2 since
the forgery of the indorsement is not the cause of the loss.3

The Philippine National Bank hereinafter referred to as the PNB seeks

the review by certiorari of a decision of the Court of Appeals, which
affirmed that of the Court of First Instance of Manila, dismissing plaintiff's
complaint against the Philippine Commercial and Industrial Bank
hereinafter referred to as the PCIB for the recovery of P57,415.00.
A partial stipulation of facts entered into by the parties and the decision of
the Court of Appeals show that, on about January 15, 1962, one Augusto
Lim deposited in his current account with the PCIB branch at Padre Faura,
Manila, GSIS Check No. 645915- B, in the sum of P57,415.00, drawn
against the PNB; that, following an established banking practice in the
Philippines, the check was, on the same date, forwarded, for clearing,
through the Central Bank, to the PNB, which did not return said check the
next day, or at any other time, but retained it and paid its amount to the
PCIB, as well as debited it against the account of the GSIS in the PNB; that,

With respect to the warranty on the back of the check, to which the third
assignment of error refers, it should be noted that the PCIB thereby
guaranteed "all prior indorsements," not the authenticity of the signatures

of the officers of the GSIS who signed on its behalf, because the GSIS is not
an indorser of the check, but its drawer.4 Said warranty is irrelevant,
therefore, to the PNB's alleged right to recover from the PCIB. It could have
been availed of by a subsequent indorsee5 or a holder in due course6
subsequent to the PCIB, but, the PNB is neither.7 Indeed, upon payment by
the PNB, as drawee, the check ceased to be a negotiable instrument, and
became a mere voucher or proof of payment.8
Referring to the fourth and fifth assignments of error, we must bear in mind
that, in general, "acceptance", in the sense in which this term is used in
the Negotiable Instruments Law9 is not required for checks, for the same
are payable on demand.10 Indeed, "acceptance" and "payment" are,
within the purview of said Law, essentially different things, for the former is
"a promise to perform an act," whereas the latter is the "actual
performance" thereof.11 In the words of the Law,12 "the acceptance of a
bill is the signification by the drawee of his assent to the order of the
drawer," which, in the case of checks, is the payment, on demand, of a
given sum of money. Upon the other hand, actual payment of the amount
of a check implies not only an assent to said order of the drawer and a
recognition of the drawer's obligation to pay the aforementioned sum, but,
also, a compliance with such obligation.

the primary or proximate cause of the loss, and, hence, may not recover
from the PCIB.13
It is a well-settled maxim of law and equity that when one of two (2)
innocent persons must suffer by the wrongful act of a third person, the loss
must be borne by the one whose negligence was the proximate cause of
the loss or who put it into the power of the third person to perpetrate the
wrong.14
Then, again, it has, likewise, been held that, where the collecting (PCIB)
and the drawee (PNB) banks are equally at fault, the court will leave the
parties where it finds them.15
Lastly, Section 62 of Act No. 2031 provides:
The acceptor by accepting the instrument engages that he will pay it
according to the tenor of his acceptance; and admits:
(a)
The existence of the drawer, the genuineness of his signature, and
his capacity and authority to draw the instrument; and
(b)

Let us now consider the first and the last assignments of error. The PNB
maintains that the lower court erred in not finding that the PCIB had been
guilty of negligence in not discovering that the check was forged.
Assuming that there had been such negligence on the part of the PCIB, it is
undeniable, however, that the PNB has, also, been negligent, with the
particularity that the PNB had been guilty of a greater degree of
negligence, because it had a previous and formal notice from the GSIS that
the check had been lost, with the request that payment thereof be
stopped. Just as important, if not more important and decisive, is the fact
that the PNB's negligence was the main or proximate cause for the
corresponding loss.
In this connection, it will be recalled that the PCIB did not cash the check
upon its presentation by Augusto Lim; that the latter had merely deposited
it in his current account with the PCIB; that, on the same day, the PCIB sent
it, through the Central Bank, to the PNB, for clearing; that the PNB did not
return the check to the PCIB the next day or at any other time; that said
failure to return the check to the PCIB implied, under the current banking
practice, that the PNB considered the check good and would honor it; that,
in fact, the PNB honored the check and paid its amount to the PCIB; and
that only then did the PCIB allow Augusto Lim to draw said amount from his
aforementioned current account.
Thus, by not returning the check to the PCIB, by thereby indicating that the
PNB had found nothing wrong with the check and would honor the same,
and by actually paying its amount to the PCIB, the PNB induced the latter,
not only to believe that the check was genuine and good in every respect,
but, also, to pay its amount to Augusto Lim. In other words, the PNB was

The existence of the payee and his then capacity to indorse.

The prevailing view is that the same rule applies in the case of a drawee
who pays a bill without having previously accepted it.16
WHEREFORE, the decision appealed from is hereby affirmed, with costs
against the Philippine National Bank. It is so ordered.

HULL, J.:
Plaintiff corporation, organized under the laws of the Territory of Hawaii, is
authorized to engaged in business in the Philippine Islands, and maintains
its main office in these Islands in the City of Manila.
The business in the Philippine Islands was in the hands of Alfred D. Cooper,
its agent under general power of attorney with authority of substitution.
The principal employee in the Manila office was one Joseph L. Wilson, to
whom had been given a general power of attorney but without power of
substitution. In 1926 Cooper, desiring to go on vacation, gave a general
power of attorney to Newland Baldwin and at the same time revoked the
power of Wilson relative to the dealings with the Bank of the Philippine
Islands, one of the banks in Manila in which plaintiff maintained a deposit.
About a year thereafter Wilson, conspiring together with one Alfredo
Dolores, a messenger-clerk in plaintiff's Manila office, sent a cable gram in
code to the company in Honolulu requesting a telegraphic transfer to the
China Banking Corporation of Manila of $100,00. The money was
transferred by cable, and upon its receipt the China Banking Corporation,
likewise a bank in which plaintiff maintained a deposit, sent an exchange
contract to plaintiff corporation offering the sum of P201,000, which was
then the current rate of exchange. On this contract was forged the name of
Newland Baldwin and typed on the body of the contract was a
note:lawphil.net
Please send us certified check in our favor when transfer is received.
A manager's check on the China Banking Corporation for P201,000 payable
to San Carlos Milling Company or order was receipted for by Dolores. On
the same date, September 28, 1927, the manger's check was deposited
with the Bank of the Philippine Islands by the following endorsement:
For deposit only with Bank of the Philippine Islands, to credit of account of
San Carlos Milling Co., Ltd.
By (Sgd.) NEWLAND BALDWIN
For Agent
The endorsement to which the name of Newland Baldwin was affixed was
spurious.

G.R. No. L-37467

The Bank of the Philippine Islands thereupon credited the current account
of plaintiff in the sum of P201,000 and passed the cashier's check in the
ordinary course of business through the clearing house, where it was paid
by the China Banking Corporation.

December 11, 1933

SAN CARLOS MILLING CO., LTD., plaintiff-appellant,

vs.
BANK OF THE PHILIPPINE ISLANDS and CHINA
CORPORATION, defendants-appellees.

BANKING

On the same day the cashier of the Bank of the Philippine Islands received
a letter, purporting to be signed by Newland Baldwin, directing that
P200,000 in bills of various denominations, named in the letter, be packed
for shipment and delivery the next day. The next day, Dolores witnessed

the counting and packing of the money, and shortly afterwards returned
with the check for the sum of P200,000, purporting to be signed by
Newland Baldwin as agent.
Plaintiff had frequently withdrawn currency for shipment to its mill from the
Bank of the Philippine Islands but never in so large an amount, and
according to the record, never under the sole supervision of Dolores as the
representative of plaintiff.
Before delivering the money, the bank asked Dolores for P1 to cover the
cost of packing the money, and he left the bank and shortly afterwards
returned with another check for P1, purporting to be signed by Newland
Baldwin. Whereupon the money was turned over to Dolores, who took it to
plaintiff's office, where he turned the money over to Wilson and received as
his share, P10,000.
Shortly thereafter the crime was discovered, and upon the defendant bank
refusing to credit plaintiff with the amount withdrawn by the two forged
checks of P200,000 and P1, suit was brought against the Bank of the
Philippine Islands, and finally on the suggestion of the defendant bank, an
amended complaint was filed by plaintiff against both the Bank of the
Philippine Islands and the China Banking Corporation.
At the trial the China Banking Corporation contended that they had drawn
a check to the credit of the plaintiff company, that the check had been
endorsed for deposit, and that as the prior endorsement had in law been
guaranteed by the Bank of the Philippine Islands, when they presented the
cashier's check to it for payment, the China Banking Corporation was
absolved even if the endorsement of Newland Baldwin on the check was a
forgery.
The Bank of the Philippine Islands presented many special defenses, but in
the main their contentions were that they had been guilty of no
negligence, that they had dealt with the accredited representatives of the
company in the due course of business, and that the loss was due to the
dishonesty of plaintiff's employees and the negligence of plaintiff's general
agent.
In plaintiff's Manila office, besides the general agent, Wilson, and Dolores,
most of the time there was employed a woman stenographer and cashier.
The agent did not keep in his personal possession either the code-book or
the blank checks of either the Bank of the Philippine Islands or the China
Banking Corporation. Baldwin was authorized to draw checks on either of
the depositaries. Wilson could draw checks in the name of the plaintiff on
the China Banking Corporation.
After trial in which much testimony was taken, the trial court held that the
deposit of P201,000 in the Bank of the Philippine Islands being the result of
a forged endorsement, the relation of depositor and banker did not exist,
but the bank was only a gratuitous bailee; that the Bank of the Philippine
Islands acted in good faith in the ordinary course of its business, was not

guilty of negligence, and therefore under article 1902 of the Civil Code
which should control the case, plaintiff could not recover; and that as the
cause of loss was the criminal actions of Wilson and Dolores, employees of
plaintiff, and as Newland Baldwin, the agent, had not exercised adequate
supervision over plaintiff's Manila office, therefore plaintiff was guilty of
negligence, which ground would likewise defeat recovery.
From the decision of the trial court absolving the defendants, plaintiff
brings this appeal and makes nine assignments of error which we do not
deem it necessary to discuss in detail.
There is a mild assertion on the part of the defendant bank that the
disputed signatures of Newland Baldwin were genuine and that he had
been in the habit of signing checks in blank and turning the checks so
signed over to Wilson.
The proof as to the falsity of the questioned signatures of Baldwin places
the matter beyond reasonable doubt, nor is it believed that Baldwin signed
checks in blank and turned them over to Wilson.
As to the China Banking Corporation, it will be seen that it drew its check
payable to the order of plaintiff and delivered it to plaintiff's agent who was
authorized to receive it. A bank that cashes a check must know to whom it
pays. In connection with the cashier's check, this duty was therefore upon
the Bank of the Philippine Islands, and the China Banking Corporation was
not bound to inspect and verify all endorsements of the check, even if
some of them were also those of depositors in that bank. It had a right to
rely upon the endorsement of the Bank of the Philippine Islands when it
gave the latter bank credit for its own cashier's check. Even if we would
treat the China Banking Corporation's cashier's check the same as the
check of a depositor and attempt to apply the doctrines of the Great
Eastern Life Insurance Co. vs. Hongkong & Shanghai Banking Corporation
and National Bank (43 Phil., 678), and hold the China Banking Corporation
indebted to plaintiff, we would at the same time have to hold that the Bank
of the Philippine Islands was indebted to the China Banking Corporation in
the same amount. As, however, the money was in fact paid to plaintiff
corporation, we must hold that the China Banking Corporation is indebted
neither to plaintiff nor to the Bank of the Philippine Islands, and the
judgment of the lower court far as it absolves the China Banking
Corporation from responsibility is affirmed.
Returning to the relation between plaintiff and the Bank of the Philippine
Islands, we will now consider the effect of the deposit of P201,000. It must
be noted that this was not a presenting of the check for cash payment but
for deposit only. It is a matter of general knowledge that most
endorsements for deposit only, are informal. Most are by means of a
rubber stamp. The bank would have been justified in accepting the check
for deposit even with only a typed endorsement. It accepted the check and
duly credited plaintiff's account with the amount on the face of the check.
Plaintiff was not harmed by the transaction as the only result was the
removal of that sum of money from a bank from which Wilson could have

drawn it out in his own name to a bank where Wilson would not have
authority to draw checks and where funds could only be drawn out by the
check of Baldwin.
Plaintiff in its letter of December 23, 1928, to the Bank of the Philippine
Islands said in part:
". . . we now leave to demand that you pay over to us the entire amount of
said manager's check of two hundred one thousand (P201,000) pesos,
together with interest thereon at the agreed rate of 3 per cent per
annum on daily balances of our credit in account current with your bank to
this date. In the event of your refusal to pay, we shall claim interest at the
legal rate of 6 per cent from and after the date of this demand inasmuch as
we desire to withdraw and make use of the money." Such language might
well be treated as a ratification of the deposit.
The contention of the bank that it was a gratuitous bailee is without merit.
In the first place, it is absolutely contrary to what the bank did. It did not
take it up as a separate account but it transferred the credit to plaintiff's
current account as a depositor of that bank. Furthermore, banks are not
gratuitous bailees of the funds deposited with them by their customers.
Banks are run for gain, and they solicit deposits in order that they can use
the money for that very purpose. In this case the action was neither
gratuitous nor was it a bailment.

The bank paid out its money because it relied upon the genuineness of the
purported signatures of Baldwin. These, they never questioned at the time
its employees should have used care. In fact, even today the bank
represents that it has a relief that they are genuine signatures.
The signatures to the check being forged, under section 23 of the
Negotiable Instruments Law they are not a charge against plaintiff nor are
the checks of any value to the defendant.
It must therefore be held that the proximate cause of loss was due to the
negligence of the Bank of the Philippine Islands in honoring and cashing
the two forged checks.
The judgment absolving the Bank of the Philippine Islands must therefore
be reversed, and a judgment entered in favor of plaintiff-appellant and
against the Bank of the Philippine Islands, defendant-appellee, for the sum
of P200,001, with legal interest thereon from December 23,1928, until
payment, together with costs in both instances. So ordered.

Metropolitan Waterworks and Sewerage System vs Court of

Appeals

On the other hand, we cannot agree with the theory of plaintiff that the
Bank of the Philippine Islands was an intermeddling bank. In the many
cases cited by plaintiff where the bank that cashed the forged
endorsement was held as an intermeddler, in none was the claimant a
regular depositor of the bank, nor in any of the cases cited, was the
endorsement for deposit only. It is therefore clear that the relation of
plaintiff with the Bank of the Philippine Islands in regard to this item of
P201,000 was that of depositor and banker, creditor and debtor.

143 SCRA 20 Mercantile Law Negotiable Instruments Law Liabilities of

Parties Forgery Negligence of Drawer

We now come to consider the legal effect of payment by the bank to

Dolores of the sum of P201,000, on two checks on which the name of
Baldwin was forged as drawer. As above stated, the fact that these
signatures were forged is beyond question. It is an elementary principle
both of banking and of the Negotiable Instruments Law that

From March to May 1969, MWSS issued 23 checks to various payees in the
aggregate amount of P320,636.26. During the same months, another set of
23 checks containing the same check numbers earlier issued were forged.
The aggregate amount of the forged checks amounted to P3,457,903.00.
This amount was distributed to the bank accounts of three persons: Arturo
Sison, Antonio Mendoza, and Raul Dizon.

A bank is bound to know the signatures of its customers; and if it pays a

forged check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the account of
the depositor whose name was forged. (7 C.J., 683.)
There is no act of the plaintiff that led the Bank of the Philippine Islands
astray. If it was in fact lulled into a false sense of security, it was by the
effrontery of Dolores, the messenger to whom it entrusted this large sum
of money.

FACTS: Metropolitan Waterworks and Sewerage System (MWSS) had an

account with PNB. When it was still called NAWASA, MWSS made a special
arrangement with PNB so that it may have personalized checks to be
printed by Mesina Enterprises. These personalized checks were the ones
being used by MWSS in its business transactions.

MWSS then demanded PNB to restore the amount of P3,457,903.00. PNB

refused. The trial court ruled in favor of MWSS but the Court of Appeals
reversed the trial courts decision.
ISSUE: Whether or not PNB should restore the said amount.
HELD: No. MWSS is precluded from setting up the defense of forgery. It has
been proven that MWSS has been negligent in supervising the printing of
its personalized checks. It failed to provide security measures and
coordinate the same with PNB. Further, the signatures in the forged checks

appear to be genuine as reported by the National Bureau of Investigation

so much so that the MWSS itself cannot tell the difference between the
forged signature and the genuine one. The records likewise show that
MWSS failed to provide appropriate security measures over its own records
thereby laying confidential records open to unauthorized persons. Even if
the twenty-three (23) checks in question are considered forgeries,
considering the MWSSs gross negligence, it is barred from setting up the
defense of forgery under Section 23 of the Negotiable Instruments Law.
The Supreme Court further emphasized that forgery cannot be presumed.
It must be established by clear, positive, and convincing evidence. This
was not done in the present case.

G.R. No. 74917

January 20, 1988

BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner,

vs.
EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE
CORPORATION, AND REGIONAL TRIAL COURT OF QUEZON CITY,
BRANCH XCII (92), respondents.

GANCAYCO, J.:
This is a petition for review on certiorari of a decision of the Regional Trial
Court of Quezon City promulgated on March 24, 1986 in Civil Case No. Q46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable
Banking Corporation and the Philippine Clearing House Corporation after a
review of the Decision of the Board of Directors of the Philippine Clearing
House Corporation (PCHC) in the case of Equitable Banking Corporation
(EBC) vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No.
84033.
The undisputed facts are as follows:
It appears that some time in March, April, May and August 1983, plaintiff
through its Visa Card Department, drew six crossed Manager's check
(Exhibits "A" to "F", and herein referred to as Checks) having an aggregate
amount of Forty Five Thousand Nine Hundred and Eighty Two & 23/100

(P45,982.23) Pesos and payable to certain member establishments of Visa

Card. Subsequently, the Checks were deposited with the defendant to the
credit of its depositor, a certain Aida Trencio.

Hence this petition.

The petition is focused on the following issues:

Following normal procedures, and after stamping at the back of the Checks
the usual endorsements. All prior and/or lack of endorsement guaranteed
the defendant sent the checks for clearing through the Philippine Clearing
House Corporation (PCHC). Accordingly, plaintiff paid the Checks; its
clearing account was debited for the value of the Checks and defendant's
clearing account was credited for the same amount,
Thereafter, plaintiff discovered that the endorsements appearing at the
back of the Checks and purporting to be that of the payees were forged
and/or unauthorized or otherwise belong to persons other than the payees.

1.
Did the PCHC have any jurisdiction to give due course to and
adjudicate Arbicom Case No. 84033?
2.
Were the subject checks non-negotiable and if not, does it fall
under the ambit of the power of the PCHC?
3.
Is the Negotiable Instrument Law, Act No. 2031 applicable in
deciding controversies of this nature by the PCHC?
4.

Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented

the Checks directly to the defendant for the purpose of claiming
reimbursement from the latter. However, defendant refused to accept such
direct presentation and to reimburse the plaintiff for the value of the
Checks; hence, this case.
In its Complaint, plaintiff prays for judgment to require the defendant to
pay the plaintiff the sum of P45,982.23 with interest at the rate of 12% per
annum from the date of the complaint plus attorney's fees in the amount of
P10,000.00 as well as the cost of the suit.
In accordance with Section 38 of the Clearing House Rules and Regulations,
the dispute was presented for Arbitration; and Atty. Ceasar Querubin was
designated as the Arbitrator.
After an exhaustive investigation and hearing the Arbiter rendered a
decision in favor of the plaintiff and against the defendant ordering the
PCHC to debit the clearing account of the defendant, and to credit the
clearing account of the plaintiff of the amount of P45,982.23 with interest
at the rate of 12% per annum from date of the complaint and Attorney's
fee in the amount of P5,000.00. No pronouncement as to cost was made. 1
In a motion for reconsideration filed by the petitioner, the Board of
Directors of the PCHC affirmed the decision of the said Arbiter in this wise:
In view of all the foregoing, the decision of the Arbiter is confirmed; and the
Philippine Clearing House Corporation is hereby ordered to debit the
clearing account of the defendant and credit the clearing account of
plaintiff the amount of Forty Five Thousand Nine Hundred Eighty Two &
23/100 (P45,982.23) Pesos with interest at the rate of 12% per annum from
date of the complaint, and the Attorney's fee in the amount of Five
Thousand (P5,000.00) Pesos.
Thus, a petition for review was filed with the Regional Trial Court of Quezon
City, Branch XCII, wherein in due course a decision was rendered affirming
in toto the decision of the PCHC.

What law should govern in resolving controversies of this nature?

5.
Was the petitioner bank negligent and thus responsible for any
undue payment?
Petitioner maintains that the PCHC is not clothed with jurisdiction because
the Clearing House Rules and Regulations of PCHC cover and apply only to
checks that are genuinely negotiable. Emphasis is laid on the primary
purpose of the PCHC in the Articles of Incorporation, which states:
To provide, maintain and render an effective, convenient, efficient,
economical and relevant exchange and facilitate service limited to check
processing and sorting by way of assisting member banks, entities in
clearing checks and other clearing items as defined in existing and in
future Central Bank of the Philippines circulars, memoranda, circular
letters, rules and regulations and policies in pursuance to the provisions of
Section 107 of R.A. 265. ...
and Section 107 of R.A. 265 which provides:
xxx

xxx

xxx

The deposit reserves maintained by the banks in the Central Bank, in

accordance with the provisions of Section 1000 shall serve as a basis for
the clearing of checks, and the settlement of interbank balances ...
Petitioner argues that by law and common sense, the term check should be
interpreted as one that fits the articles of incorporation of the PCHC, the
Central Bank and the Clearing House Rules stating that it is a negotiable
instrument citing the definition of a "check" as basically a "bill of
exchange" under Section 185 of the NIL and that it should be payable to
"order" or to "bearer" under Section 126 of game law. Petitioner alleges
that with the cancellation of the printed words "or bearer from the face of
the check, it becomes non-negotiable so the PCHC has no jurisdiction over
the case.

The Regional Trial Court took exception to this stand and conclusion put
forth by the herein petitioner as it held:
Petitioner's theory cannot be maintained. As will be noted, the PCHC makes
no distinction as to the character or nature of the checks subject of its
jurisdiction. The pertinent provisions quoted in petitioners memorandum
simply refer to check(s). Where the law does not distinguish, we shall not
distinguish.
In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the
Appellate Court categorically stated that there are four kinds of checks in
this jurisdiction; the regular check; the cashier's check; the traveller's
check; and the crossed check. The Court, further elucidated, that while the
Negotiable Instruments Law does not contain any provision on crossed
checks, it is coon practice in commercial and banking operations to issue
checks of this character, obviously in accordance with Article 541 of the
Code of Commerce. Attention is likewise called to Section 185 of the
Negotiable Instruments Law:
Sec. 185. Check defined. A check is a bill of exchange drawn on a bank
payable on demand. Except as herein otherwise provided, the provisions of
this act applicable to a bill of exchange payable on demand apply to a
check

We agree.
As provided in the aforecited articles of incorporation of PCHC its operation
extend to "clearing checks and other clearing items." No doubt
transactions on non-negotiable checks are within the ambit of its
jurisdiction.
In a previous case, this Court had occasion to rule: "Ubi lex non distinguish
nec nos distinguere debemos." 2 It was enunciated in Loc Cham v.
Ocampo, 77 Phil. 636 (1946):
The rule, founded on logic is a corollary of the principle that general words
and phrases in a statute should ordinarily be accorded their natural and
general significance. In other words, there should be no distinction in the
application of a statute where none is indicated.
There should be no distinction in the application of a statute where none is
indicated for courts are not authorized to distinguish where the law makes
no distinction. They should instead administer the law not as they think it
ought to be but as they find it and without regard to consequences. 3
The term check as used in the said Articles of Incorporation of PCHC can
only connote checks in general use in commercial and business activities.
It cannot be conceived to be limited to negotiable checks only.

and the provisions of Section 61 (supra) that the drawer may insert in the
instrument an express stipulation negating or limiting his own liability to
the holder. Consequently, it appears that the use of the term "check" in the
Articles of Incorporation of PCHC is to be perceived as not limited to
negotiable checks only, but to checks as is generally known in use in
commercial or business transactions.

Checks are used between banks and bankers and their customers, and are
designed to facilitate banking operations. It is of the essence to be payable
on demand, because the contract between the banker and the customer is
that the money is needed on demand. 4

Anent Petitioner's liability on said instruments, this court is in full accord

with the ruling of the PCHC Board of Directors that:

The participation of the two banks, petitioner and private respondent, in

the clearing operations of PCHC is a manifestation of their submission to its
jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and
regulations provide:

In presenting the Checks for clearing and for payment, the defendant made
an express guarantee on the validity of "all prior endorsements." Thus,
stamped at the back of the checks are the defendant's clear warranty; ALL
PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED.
With. out such warranty, plaintiff would not have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendant's
warranty. As the warranty has proven to be false and inaccurate, the
defendant is liable for any damage arising out of the falsity of its
representation.
The principle of estoppel, effectively prevents the defendant from denying
liability for any damage sustained by the plaintiff which, relying upon an
action or declaration of the defendant, paid on the Checks. The same
principle of estoppel effectively prevents the defendant from denying the
existence of the Checks. (Pp. 1011 Decision; pp. 4344, Rollo)

SEC. 3. AGREEMENT TO THESE RULES. It is the general agreement and

understanding that any participant in the Philippine Clearing House
Corporation, MICR clearing operations by the mere fact of their
participation, thereby manifests its agreement to these Rules and
Regulations and its subsequent amendments."
Sec 36.6. (ARBITRATION) The fact that a bank participates in the clearing
operations of the PCHC shall be deemed its written and subscribed consent
to the binding effect of this arbitration agreement as if it had done so in
accordance with section 4 of the Republic Act No. 876, otherwise known as
the Arbitration Law.
Further Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one or
more arbitrators any controversy existing between them at the time of the

submission and which may be the subject of an action, or the parties of

any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or contract
shall be valid and irrevocable, save upon grounds as exist at law for the
revocation of any contract.
Such submission or contract may include question arising out of valuations,
appraisals or other controversies which may be collateral, incidental,
precedent or subsequent to any issue between the parties. ...
Sec. 21 of the same rules, says:
Items which have been the subject of material alteration or items bearing
forged endorsement when such endorsement is necessary for negotiation
shall be returned by direct presentation or demand to the Presenting Bank
and not through the regular clearing house facilities within the period
prescribed by law for the filing of a legal action by the returning
bank/branch, institution or entity sending the same. (Emphasis supplied)
Viewing these provisions the conclusion is clear that the PCHC Rules and
Regulations should not be interpreted to be applicable only to checks which
are negotiable instruments but also to non-negotiable instruments and that
the PCHC has jurisdiction over this case even as the checks subject of this
litigation are admittedly non-negotiable.
Moreover, petitioner is estopped from raising the defense of nonnegotiability of the checks in question. It stamped its guarantee on the
back of the checks and subsequently presented these checks for clearing
and it was on the basis of these endorsements by the petitioner that the
proceeds were credited in its clearing account.
The petitioner by its own acts and representation can not now deny liability
because it assumed the liabilities of an endorser by stamping its guarantee
at the back of the checks.
The petitioner having stamped its guarantee of "all prior endorsements
and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from
claiming that the checks under consideration are not negotiable
instruments. The checks were accepted for deposit by the petitioner
stamping thereon its guarantee, in order that it can clear the said checks
with the respondent bank. By such deliberate and positive attitude of the
petitioner it has for all legal intents and purposes treated the said cheeks
as negotiable instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior endorsements at the back
of the checks. It led the said respondent to believe that it was acting as
endorser of the checks and on the strength of this guarantee said
respondent cleared the checks in question and credited the account of the
petitioner. Petitioner is now barred from taking an opposite posture by
claiming that the disputed checks are not negotiable instrument.

This Court enunciated in Philippine National Bank vs. Court of Appeals 5 a

point relevant to the issue when it stated the doctrine of estoppel is based
upon the grounds of public policy, fair dealing, good faith and justice and
its purpose is to forbid one to speak against his own act, representations or
commitments to the injury of one to whom they were directed and who
reasonably relied thereon.
A commercial bank cannot escape the liability of an endorser of a check
and which may turn out to be a forged endorsement. Whenever any bank
treats the signature at the back of the checks as endorsements and thus
logically guarantees the same as such there can be no doubt said bank has
considered the checks as negotiable.
Apropos the matter of forgery in endorsements, this Court has succinctly
emphasized that the collecting bank or last endorser generally suffers the
loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements. This is laid down in the case of PNB vs. National City Bank.
6 In another case, this court held that if the drawee-bank discovers that
the signature of the payee was forged after it has paid the amount of the
check to the holder thereof, it can recover the amount paid from the
collecting bank. 7
A truism stated by this Court is that "The doctrine of estoppel precludes
a party from repudiating an obligation voluntarily assumed after having
accepted benefits therefrom. To countenance such repudiation would be
contrary to equity and put premium on fraud or misrepresentation". 8
We made clear in Our decision in Philippine National Bank vs. The National
City Bank of NY & Motor Service Co. that:
Where a check is accepted or certified by the bank on which it is drawn,
the bank is estopped to deny the genuineness of the drawers signature
and his capacity to issue the instrument.
If a drawee bank pays a forged check which was previously accepted or
certified by the said bank, it can not recover from a holder who did not
participate in the forgery and did not have actual notice thereof.
The payment of a check does not include or imply its acceptance in the
sense that this word is used in Section 62 of the Negotiable Instruments
Act. 9
The point that comes uppermost is whether the drawee bank was negligent
in failing to discover the alteration or the forgery. Very akin to the case at
bar is one which involves a suit filed by the drawer of checks against the
collecting bank and this came about in Farmers State Bank 10 where it was
held:

A cause of action against the (collecting bank) in favor of the appellee (the
drawer) accrued as a result of the bank breaching its implied warranty of
the genuineness of the indorsements of the name of the payee by bringing
about the presentation of the checks (to the drawee bank) and collecting
the amounts thereof, the right to enforce that cause of action was not
destroyed by the circumstance that another cause of action for the
recovery of the amounts paid on the checks would have accrued in favor of
the appellee against another or to others than the bank if when the checks
were paid they have been indorsed by the payee. (United States vs.
National Exchange Bank, 214 US, 302, 29 S CT665, 53 L. Ed 1006, 16 Am.
Cas. 11 84; Onondaga County Savings Bank vs. United States (E.C.A.) 64 F
703)

their genuineness and regularity. The collecting bank being primarily

engaged in banking holds itself out to the public as the expert and the law
holds it to a high standard of conduct.
And although the subject checks are non-negotiable the responsibility of
petitioner as indorser thereof remains.
To countenance a repudiation by the petitioner of its obligation would be
contrary to equity and would deal a negative blow to the whole banking
system of this country.
The court reproduces with approval the following disquisition of the PCHC
in its decision

Section 66 of the Negotiable Instruments ordains that:

II.
Every indorser who indorsee without qualification, warrants to all
subsequent holders in due course' (a) that the instrument is genuine and in
all respects what it purports to be; (b) that he has good title to it; (c) that
all prior parties have capacity to contract; and (d) that the instrument is at
the time of his indorsement valid and subsisting. 11

Payments To Persons Other

Than The Payees Are Not Valid

And Give Rise To An Obligation
To Return Amounts Received

It has been enunciated in an American case particularly in American

Exchange National Bank vs. Yorkville Bank 12 that: "the drawer owes no
duty of diligence to the collecting bank (one who had accepted an altered
check and had paid over the proceeds to the depositor) except of
seasonably discovering the alteration by a comparison of its returned
checks and check stubs or other equivalent record, and to inform the
drawee thereof." In this case it was further held that:
The real and underlying reasons why negligence of the drawer constitutes
no defense to the collecting bank are that there is no privity between the
drawer and the collecting bank (Corn Exchange Bank vs. Nassau Bank, 204
N.Y.S. 80) and the drawer owe to that bank no duty of vigilance (New York
Produce Exchange Bank vs. Twelfth Ward Bank, 204 N.Y.S. 54) and no act of
the collecting bank is induced by any act or representation or admission of
the drawer (Seaboard National Bank vs. Bank of America (supra) and it
follows that negligence on the part of the drawer cannot create any liability
from it to the collecting bank, and the drawer thus is neither a necessary
nor a proper party to an action by the drawee bank against such bank. It is
quite true that depositors in banks are under the obligation of examining
their passbooks and returned vouchers as a protection against the
payment by the depository bank against forged checks, and negligence in
the performance of that obligation may relieve that bank of liability for the
repayment of amounts paid out on forged checks, which but for such
negligence it would be bound to repay. A leading case on that subject is
Morgan vs. United States Mortgage and Trust Col. 208 N.Y. 218, 101 N.E.
871 Amn. Cas. 1914D, 462, L.R.A. 1915D, 74.
Thus We hold that while the drawer generally owes no duty of diligence to
the collecting bank, the law imposes a duty of diligence on the collecting
bank to scrutinize checks deposited with it for the purpose of determining

Nothing is more clear than that neither the defendant's depositor nor the
defendant is entitled to receive payment payable for the Checks. As the
checks are not payable to defendant's depositor, payments to persons
other than payees named therein, their successor-in-interest or any person
authorized to receive payment are not valid. Article 1240, New Civil Code
of the Philippines unequivocably provides that:
"Art. 1240.
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successo-in-interest, or any person
authorized to receive it. "
Considering that neither the defendant's depositor nor the defendant is
entitled to receive payments for the Checks, payments to any of them give
rise to an obligation to return the amounts received. Section 2154 of the
New Civil Code mandates that:
Article 2154.
If something is received when there is no right to demand
it, and it was unduly delivered through mistake, the obligation to return it
arises.
It is contended that plaintiff should be held responsible for issuing the
Checks notwithstanding that the underlying transactions were fictitious
This contention has no basis in our jurisprudence.
The nullity of the underlying transactions does not diminish, but in fact
strengthens, plaintiffs right to recover from the defendant. Such nullity
clearly emphasizes the obligation of the payees to return the proceeds of
the Checks. If a failure of consideration is sufficient to warrant a finding
that a payee is not entitled to payment or must return payment already

made, with more reason the defendant, who is neither the payee nor the
person authorized by the payee, should be compelled to surrender the
proceeds of the Checks received by it. Defendant does not have any title to
the Checks; neither can it claim any derivative title to them.
III.

Having Violated Its Warranty

On Validity Of All Endorsements,

Collecting Bank Cannot Deny
liability To Those Who Relied

On the matter of the award of the interest and attorney's fees, the Board of
Directors finds no reason to reverse the decision of the Arbiter. The
defendant's failure to reimburse the plaintiff has constrained the plaintiff to
regular the services of counsel in order to protect its interest
notwithstanding that plaintiffs claim is plainly valid just and demandable. In
addition, defendant's clear obligation is to reimburse plaintiff upon direct
presentation of the checks; and it is undenied that up to this time the
defendant has failed to make such reimbursement.
WHEREFORE, the petition is DISMISSED for lack of merit without
pronouncement as to costs. The decision of the respondent court of 24
March 1986 and its order of 3 June 1986 are hereby declared to be
immediately executory.

On Its Warranty
SO ORDERED.
In presenting the Checks for clearing and for payment, the defendant made
an express guarantee on the validity of "all prior endorsements." Thus,
stamped at the bank of the checks are the defendant's clear warranty: ALL
PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED.
Without such warranty, plaintiff would not have paid on the checks.
No amount of legal jargon can reverse the clear meaning of defendant's
warranty. As the warranty has proven to be false and inaccurate, the
defendant is liable for any damage arising out of the falsity of its
representation.
The principle of estoppel effectively prevents the defendant from denying
liability for any damages sustained by the plaintiff which, relying upon an
action or declaration of the defendant, paid on the Checks. The same
principle of estoppel effectively prevents the defendant from denying the
existence of the Checks.
Whether the Checks have been issued for valuable considerations or not is
of no serious moment to this case. These Checks have been made the
subject of contracts of endorsement wherein the defendant made
expressed warranties to induce payment by the drawer of the Checks; and
the defendant cannot now refuse liability for breach of warranty as a
consequence of such forged endorsements. The defendant has falsely
warranted in favor of plaintiff the validity of all endorsements and the
genuineness of the cheeks in all respects what they purport to be.
The damage that will result if judgment is not rendered for the plaintiff is
irreparable. The collecting bank has privity with the depositor who is the
principal culprit in this case. The defendant knows the depositor; her
address and her history, Depositor is defendant's client. It has taken a risk
on its depositor when it allowed her to collect on the crossed-checks.
Having accepted the crossed checks from persons other than the payees,
the defendant is guilty of negligence; the risk of wrongful payment has to
be assumed by the defendant.